China policy: short-term lift or long-term change?

Chinese equities will benefit the most from policy shifts.

China’s recent policy easing measures, including rate cuts and relaxed housing restrictions, have sparked a notable shift in market sentiment and the outlook for Chinese assets, as highlighted in a new analysis by Amundi, one of Europe’s leading asset managers. These policy changes are seen as a step toward stabilising the economy, but whether they bring lasting impact depends on further fiscal measures.

• Significant policy shift: China’s Politburo has announced a series of policy easing measures, including rate cuts and relaxed housing restrictions, aimed at stabilising the economy and reviving sentiment. Regarding fiscal policy, there was no explicit mention of a supplementary budget, but markets remain optimistic for potential additional budgets by the end of October.
• Chinese stocks rebound: Following monetary stimulus and liquidity measures from the People’s Bank of China, the Shanghai Shenzhen CSI 300 Index saw its highest weekly rally since 2008, erasing year-to-date losses and rising 7.9% for the year, fuelled by improving market sentiment.
• More optimistic turn on Chinese assets: Recent policy shifts are supportive for Chinese equities, but while monetary easing and housing adjustments may stabilise sentiment in the short term, the effectiveness of these measures in reversing economic challenges will depend on the introduction of robust consumer-oriented fiscal policies.
• Views on Chinese equities: Onshore A-shares and select Hong Kong stocks are poised to benefit from policy shifts, with attractive earning yields compared to bond yields, particularly in consumer staples and financial sectors, while caution is advised regarding potential tariff risks and the need for robust fiscal stimulus.

“We have become cautiously optimistic about Chinese assets following the announcements. The monetary easing and housing policy adjustments signal a renewed effort by China’s leadership to support the economy, but they still seem unlikely to single-handedly reverse the structural economic slowdown,” said the Amundi Investment Institute team. “While these moves should help stabilise market sentiment in the short term, the real test will come from whether fiscal measures follow, a consumer-oriented fiscal package could be a true game changer in stimulating household consumption and addressing deflationary pressures.”

Amundi adds, “We believe Chinese equities – specifically onshore A-shares and select Hong Kong stocks – will benefit the most from these policy shifts. “The significant gap between earning yields and bond yields presents an attractive opportunity for equity investors. Moreover, a stabilising housing market, combined with improved household expectations, could provide further tailwinds for equities.

“We are particularly positive on consumer staples and financials, especially brokers and asset managers, which stand to benefit from increased market activity. At the same time, we recommend reducing short positions in RMB to neutral, as speculations are rising on higher growth and inflation following the fiscal measures report, stabilising the currency. However, it is prudent to remain mindful of the risk of a new wave of tariffs, especially in light of the upcoming U.S. elections.

“While the market response has been generally positive, much will depend on whether a robust fiscal stimulus package materialises. If consumer-oriented fiscal measures are introduced, we anticipate upward revisions to growth and inflation expectations for 2025. However, without such measures, the initial market rally may be short-lived. In the near term, the combination of monetary easing and targeted housing support should provide a temporary uplift, but a longer-lasting recovery will require more decisive fiscal action.”