S&P 500 Hits Record High as Tech Rally Slows Amid Iran Peace Uncertainty 
US Imposes Fresh Iran Oil Sanctions Despite Progress on Ceasefire Talks 
Dow Hits Record High as Healthcare and Consumer Stocks Lead Wall Street Rally 
U.S. Launches New Strikes on Iran as Trump Signals Peace Deal Uncertainty 
Gold Prices Slip as Stronger Dollar and Iran Peace Talk Uncertainty Weigh on Market 
Asian Stocks Rally as AI Boom and Iran Ceasefire Progress Lift Market Sentiment 
South Korea Central Bank Holds Interest Rates Steady Amid Inflation Concerns 
New World Screwworm Found Near U.S. Border Raises Threat to Cattle Industry and Beef Prices 
Tokyo Inflation Cools in May, Supporting BOJ’s Cautious Rate Hike Path 
Nikkei Hits Record High as AI Chip Stocks Power Japan Market Rally 
U.S. Sanctions Iran’s Strait of Hormuz Authority as Global Oil Markets Face Turmoil 
European Stocks Rise as AI Optimism Offsets U.S.-Iran Tensions 
ECB’s Philip Lane Warns Middle East Conflict Could Keep Inflation Elevated 
Gold Prices Hold Near Record Levels as Inflation Concerns Offset Middle East Ceasefire Hopes 
S&P 500, Nasdaq Hit Record Highs as Iran Ceasefire Talks and AI Rally Boost Markets 
Iran-U.S. Nuclear Talks Remain Unresolved as Strait of Hormuz Risks Keep Markets on Edge 
Asian Markets Slide as New U.S. Strikes on Iran Spark Investor Caution 
Last week’s surge in Chinese equities marked the strongest weekly performance since 2008 for the Shanghai Shenzhen CSI 300 index, following stimulus measures introduced by the country’s central bank and regulators. The combination of monetary, fiscal, and direct market support has sparked optimism for a continued upward trajectory, though investors are questioning the sustainability of the rally and how best to capitalize on it.
Policy Follow-Through Will Be Key
According to Gavekal Dragonomics, the strength of the rally depends on whether policymakers deliver on their recent promises of fiscal and monetary support. Historically, China's stock markets have oscillated between significant gains and losses. Of the five major rallies in the last 20 years, three were driven by government stimulus, with trough-to-peak gains of 50-100%.
“The stimulus-driven rallies had trough-to-peak gains of 50-100%, so if Chinese equities are now starting another such rally, then there should still be plenty of upside even after the recent jump,” Gavekal said in a note.
Challenges and Modest Stimulus So Far
The bullish scenario hinges on rapid and decisive policy implementation, as China’s economy faces challenges such as weak labor markets, sluggish consumption, and declining export growth. The People’s Bank of China (PBOC) recently cut policy rates by 20 basis points, and expectations are high for a more robust fiscal package, potentially reaching RMB2 trillion in new debt.
New Market Mechanisms Introduced
The PBOC has also introduced a RMB500 billion swap facility for institutional investors and a RMB300 billion refinancing facility to support stock buybacks. These mechanisms aim to create a more aggressive "China put" in the market, offering additional support.
Market Driven by Expectations
Gavekal notes that much of the current rally is driven by shifting expectations rather than concrete stimulus. The central bank’s support for corporate buybacks could significantly increase market liquidity.
Investment Focus: Onshore and Cyclical Stocks
In terms of investment strategy, Gavekal suggests focusing on onshore stocks, which have historically outperformed offshore stocks by 20-40% during stimulus-driven rallies. Among onshore stocks, Shenzhen-listed equities have consistently outperformed Shanghai-listed ones.
Sector-wise, cyclical industries like industrials, materials, and consumer discretionary have seen outperformance by around 10% in previous rallies. Real estate developers are also positioned to benefit if housing policy changes are enacted, as recently hinted by the government.
