Up another 15%! Société Générale: A new round of stimulus is brewing, and the Chinese stock market still has growth potential
Société Générale's strategist predicts that the Chinese stock market will rise by another 15% due to a new round of monetary stimulus measures. Recent stimulus measures include interest rate cuts and injecting $114 billion in liquidity, which has boosted investor confidence. Analysts believe that the stimulus package may be announced in October, with a scale of up to 3 trillion yuan, and is expected to drive next year's GDP growth to 5%. At the same time, some experts warn that the lack of fiscal stimulus may affect the effectiveness of monetary policy
According to the VETIM Finance APP, the recent outstanding performance of the Chinese stock market has attracted global attention, with the Nasdaq China Golden Dragon Index steadily rising, closing up 12% this week. Strategists at Société Générale mentioned China's recent monetary stimulus measures as a "combination of punches," and predicted that China will introduce a new round of stimulus measures to continue driving economic growth, potentially leading to another rapid 15% surge in the Chinese stock market.
The bank's strategist mentioned a series of recent monetary stimulus plans in China, including interest rate cuts, lowering the bank reserve requirement ratio, and injecting $114 billion in liquidity into the market. These measures have boosted investor optimism, and after the announcement of these measures, the Chinese stock market had its best week performance since the financial crisis.
Société Générale stated that considering the possibility of the Chinese government increasing fiscal spending next year as a supplement to monetary support measures, there may be more upside potential for the Chinese stock market. For the stock market, this means a potential short-term increase of 15% from current levels.
Strategists estimate that the stimulus package could be announced as early as October, possibly at the upcoming session of the Standing Committee of the National People's Congress at the end of this month. The scale of the comprehensive plan could be as high as 3 trillion yuan (approximately $427 billion), including an open-ended commitment to introduce even larger stimulus plans next year.
The strategists said that these measures could drive GDP growth next year to 5%, higher than the bank's initial estimate of 4.5%.
The bank stated, "We observe that the Chinese stock market is undervalued in different benchmark indices and industries. Trading prices in most markets are far below or within a 10-year historical range." In addition, they also expect this policy to drive corporate profit growth by up to 15%.
Analysts further added, "The exact magnitude of the stimulus measures will depend on the scale and details of the fiscal plan... the sustainability of housing stability and the recovery of household wealth."
Meanwhile, some other experts have pointed out that without fiscal stimulus coordination, China's monetary stimulus measures are unlikely to be effective. A researcher said this week that this may mean that the latest stimulus package will not have any direct impact on the Chinese economy before 2025, which is the earliest time for funds to be in place and deployed