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China's recent stimulus measures are being viewed as a potential turning point for its struggling economy, according to analysts at UBS.
Amid slowing economic momentum and mounting deflationary pressures, China’s top policymakers have pledged "necessary fiscal spending" and implemented stronger-than-expected monetary stimulus to stabilize the property market and support growth. UBS analysts say this indicates a more assertive policy shift by Chinese officials. Notably, this week's interest rate cuts were the most significant easing since 2012.
UBS Predicts Further Support for Key Sectors
UBS expects additional interventions in the property sector and further fiscal stimulus aimed at supporting long-term demand, with a focus on affordable housing and social welfare improvements. Since the announcement of these measures, investor sentiment has risen sharply, with China’s major stock indices, the CSI 300 and Hang Seng, rallying 14.5% and 13.5%, respectively.
“We think this policy shift could positively impact Chinese risk assets," UBS stated, emphasizing that the success of these measures hinges on both execution and continuity. UBS projects that the broader market could rise by a high-single-digit percentage, building on the nearly 14% rally that followed the stimulus package’s announcement.
Focus on Capital Markets and Financial Stability
One key feature of the stimulus package is its focus on capital markets. A notable component is a CNY 500 billion swap facility aimed at providing liquidity to brokers, funds, and insurance companies to support stock purchases. UBS suggests that additional rounds of support could be introduced if needed. The announcement of a special refinancing facility and the potential creation of a stock market stabilization fund further reflect the government’s commitment to bolstering market confidence.
Optimism Balanced by Potential Risks
UBS remains optimistic about the growth prospects for key segments of the Chinese economy, particularly Chinese internet leaders, state-owned enterprises in high-dividend sectors, and industries tied to structural trends like artificial intelligence. However, UBS also points out potential risks from external factors, including geopolitical developments and the upcoming U.S. elections, which could influence market dynamics.
Despite these uncertainties, UBS maintains a positive outlook, indicating that China’s stimulus measures could have broad implications for global markets if effectively implemented and sustained over time.
*This story is for informational purposes only and does not constitute financial advice.*
