China Stocks: Bracing for Tuesday's Reopening Amidst Fiscal Stimulus Hopes

As the week-long National Day holiday in China draws to a close, markets are eagerly anticipating the reopening of mainland exchanges on Tuesday, October 8, 2024. The focus is squarely on the fiscal stimulus package expected to be unveiled, with investors hoping for a significant boost to the economy and, consequently, the stock market.

The rally in Chinese stocks has been fueled by optimism surrounding the government's stimulus measures, with the Hang Seng Index already up more than 2% on the session, hitting 31-month highs. The tech index has also surged by 3%. This bullish sentiment is driven by expectations of more stimulus announcements, as senior Chinese officials are set to brief the market on Tuesday regarding the implementation of policies aimed at boosting economic growth.


The scale and content of the fiscal package will be a critical factor in determining the market's reaction. Analysts at Nomura have noted that the eventual size and specifics of the package may be uncertain, urging investors to exercise a "sober assessment" amidst the recent market frenzy. However, if the package meets or exceeds expectations, it could further propel the equity rally.

Key sectors likely to be most affected by the fiscal stimulus measures include real estate, infrastructure, and technology. The property market, in particular, has been a focus of recent announcements, with the government vowing to steady the market and provide sufficient fiscal spending. If the stimulus package includes substantial support for the housing sector, it could help to stabilize property prices and boost consumer confidence.


Investor sentiment could sour if the fiscal package misses expectations. A disappointing stimulus package could derail the recent equity rally, as investors may reassess their optimistic outlook on the Chinese economy. Additionally, external factors such as stronger-than-expected U.S. job numbers or a Trump victory in the U.S. elections could also cut the rally short, according to Macquarie Capital's Hsiao.

The reopening of Chinese markets on Tuesday will provide a crucial litmus test for the sustainability of the recent rally. As investors await the details of the fiscal stimulus package, the market's reaction will be a strong indicator of the confidence in the government's ability to revive the economy. With the world's second-largest economy facing looming deflationary pressures and a prolonged real estate downturn, the success of the stimulus package will be closely watched by investors and economists alike.

In conclusion, the reopening of the Chinese stock market on Tuesday is poised to be a pivotal moment for investors, as they await the details of the fiscal stimulus package. The market's reaction to the scale and content of the package will be a critical factor in determining the trajectory of the equity rally and the broader economy. As investors position themselves for the reopening, they should remain vigilant to the potential impacts of both domestic and international factors on the Chinese market.