In a significant turnaround, the stock markets of China and Hong Kong have seen an impressive surge in market capitalization. In just 15 trading days, the combined market cap of these two major markets grew by approximately $3.2 trillion. This remarkable growth comes as a result of several economic reforms introduced by the Chinese government, aimed at reviving its slowing economy.
Between September 13 and October 2, China’s total market capitalization skyrocketed from $7.95 trillion to $10.1 trillion. This means China’s stock market gained about $2 trillion in market cap within this short span. To put this into perspective, this increase is equal to the entire stock market capitalization of Switzerland, South Korea, and Australia combined.
Hong Kong’s stock market also saw a massive rise. During the same period, its market capitalization jumped from $4.79 trillion to $6 trillion, adding over $1.25 trillion. This increase is equivalent to the total market value of countries like Sweden, the Netherlands, UAE, and Spain.
Major Factors Behind the Surge
The surge in market capitalization across Chinese and Hong Kong stock exchanges can be attributed to several key economic measures implemented by the Chinese government. The primary focus of these policies has been to stimulate growth in sectors facing challenges and revive the stock market after a period of stagnation.
- Cut in Interest Rates:
China’s central bank, the People’s Bank of China (PBOC), reduced its key interest rate from 1.7% to 1.5%. This move makes borrowing more affordable for businesses and individuals, providing much-needed liquidity to the economy. - Lowering Reserve Requirements for Banks:
The required reserve ratio (RRR) for banks was slashed by 0.50%, freeing up around 1 trillion yuan (approximately $142 billion) in cash flow for the economy. This will result in lower interest rates on housing loans, benefiting around 5 million households by saving them an estimated 150 billion yuan ($21.1 billion) in interest payments. - Support for Stock Markets:
To boost the stock markets, the Chinese government introduced a 500 billion yuan ($71 billion) swap facility for brokers. In addition, listed companies were offered refinancing options to help them buy back shares. These measures are designed to lift investor confidence and encourage companies to invest more in their own stocks. - Increased Fiscal Spending:
The government has ramped up its fiscal spending, stepping away from its previous cautious stance. This has created a more supportive environment for economic growth, especially in the stock market.
Impact on Stock Prices
The positive momentum from these policy measures was reflected in the stock prices of various companies. On the Shanghai Composite Index, around 37 companies saw their stock prices jump by over 100%. In addition, shares of over 200 companies rose by 40% to 87% during this period.
The Hong Kong Hang Seng Index also experienced a significant uptick, with 19 companies seeing their stock prices increase by 50% to 100%. Another 50 companies witnessed a rise in their stock prices by 10% to 40%.
Stock Market Performance
These policy interventions have led to some of the best performances in years for China’s stock markets. In September, the CSI300 Index surged by 21%, marking its biggest jump since 2014. Similarly, the Shanghai Composite Index increased by 17%, its best performance since 2015. Over in Hong Kong, the Hang Seng Index also rose by 17%, achieving its best results since November 2022.
Challenges Ahead
Despite these positive developments, China still faces significant challenges in maintaining a steady growth rate. The country is targeting a GDP growth rate of around 5%, but recent slowdowns in the property market and the shifting of manufacturing outside China have weighed on the economy.
Moreover, while China’s focus on clean energy has made it the largest exporter of electric vehicles, it has also contributed to a dip in domestic consumption. Analysts are cautiously optimistic about the impact of China’s new policies, but it remains to be seen how effective they will be in sustaining long-term growth in the stock market.
