China’s stock market has gone parabolic this week; Will others follow?

China’s stock market experienced a meteoric rise this week, fully recovering from a previous crash that raised concerns.

The government announced a massive $140 billion stimulus package on September 24 alongside multiple interest rate cuts. This fueled the CSI 300 index to skyrocket by 15.7% in a week. The index tracks the largest companies on the Shanghai and Shenzhen exchanges.

Notably, the surge marks the biggest weekly gain since 2008 for China’s stock market. Investors are responding strongly to Beijing’s aggressive economic interventions and renewed optimism.

China’s stimulus sparks record-breaking rally

Earlier this week, China’s top financial regulators unveiled comprehensive measures to rejuvenate the slowing economy. These initiatives included significant interest rate cuts and reduced mortgage down payments, which aim to stimulate borrowing and spending.

Essentially, the People’s Bank of China allowed commercial banks to increase their lending capacity and reduce reserve requirements, injecting additional liquidity into the financial system.

Moreover, regulators took steps to bolster the stock market directly. Banks can now lend heavily to companies for share repurchases. Major shareholders seeking to increase their stakes are also permitted to borrow more. These policy shifts boosted investor confidence, driving a surge in stock purchases.

The impact was immediate and significative. The CSI 300 index closed at 3,703.68 on Friday. It achieved its largest single-week gain in nearly 16 years. The Hang Seng Index in Hong Kong mirrored this performance, climbing 12.8% over the week. These sharp gains have erased previous losses and propelled China’s stock markets into positive territory for the year.

“While the exact size and scope of the handout are still unknown, it marks a new willingness by the government to provide direct relief to the very poor,” said Xinran Andy Chen, an economics consultant in Beijing, as reported by The New York Times. This potential for one-time payments to the needy underscores the government’s broader efforts to stimulate consumer spending.

Global markets response and the Burry bet

Meanwhile, the S&P 500 index posted a modest gain, closing the week at 5,738 points, up 0.6% since Monday. Other assets showed more significant movements. Bitcoin, a barometer for alternative investments, is trading at $65,670, up 4.6% over the same period.

Notably, renowned investor Michael Burry is reaping the rewards from his investments in Chinese stocks. Known for his foresight during the 2008 subprime mortgage crisis, Burry has significant holdings in China.

According to a recent report by Finbold, his Scion Asset Management holds positions in Chinese giants Alibaba (NYSE: BABA), JD.com (NASDAQ: JD), and Baidu (NASDAQ: BIDU). These stocks have rallied sharply following China’s policy announcements.

As China’s aggressive stimulus measures take effect, investors worldwide are watching closely. The government’s willingness to implement significant fiscal and monetary policies marks a notable shift. Economists remain divided on whether these efforts will lead to sustained growth. Some believe it may provide only a temporary boost.

Meanwhile, other global markets may consider similar strategies to invigorate their economies. The question lingers: Will China’s parabolic stock market performance inspire other nations to follow suit? For now, the ripple effects are beginning to manifest. Only time will reveal the full impact of China’s moves on the global financial landscape.