Chinese Stock Market Surges After Dormant Period... "Additional 24% Rise Expected This Year"

[Asia Economy Reporter Yujin Cho] There are forecasts that the Chinese stock market will enter a liquidity-driven phase after a pause in February. The market momentum is expected to shift from 'reopening' to 'recovery,' leading to further rallies.

On the 20th (local time), while the U.S. New York Stock Exchange was closed for Presidents' Day, the Chinese stock market led the global market's upward trend, according to the Wall Street Journal (WSJ). The previous day, the Chinese stock market closed higher amid rising expectations for stimulus measures and economic recovery ahead of the Two Sessions.

The CSI300 Index, composed of 300 stocks from the Shanghai and Shenzhen exchanges and representing China's key index, rose 2.5% compared to the previous session, marking the largest daily gain this year. The Hong Kong Hang Seng Index also surged more than 1.5% compared to the previous session.

Experts predict that the upward trend of the Chinese stock market will continue this year, driven by economic recovery momentum. Goldman Sachs forecasted that the Morgan Stanley Capital International (MSCI) China Index will rise an additional 24% from last week's closing price by the end of this year.

In its report, Goldman Sachs stated, "The main market theme this year will shift from 'economic reopening' to 'economic recovery,' and the future driving force for gains is likely to transition to earnings growth."

Since the easing of COVID-19 restrictions in early December last year, the Chinese stock market rallied on expectations of economic reopening. The policy shift revived activity indicators, with China's manufacturing Purchasing Managers' Index (PMI) and non-manufacturing PMI in January recording 50.1 and 54.4 respectively, confirming a shift to an expansionary economic trend.

Amid expectations for economic stimulus from Chinese authorities, both the mainland and Hong Kong stock markets saw significant index rebounds until the end of last month, but the upward trend stalled in February due to a lack of momentum.

[Image source=AFP Yonhap News]

Bloomberg reported, "Although February saw a pause due to rising geopolitical tensions and uncertain economic recovery prospects, major political events such as the Two Sessions are expected to inject new vitality into the stock market." Investors are focusing on the confirmation of stimulus policy direction through the Two Sessions and the rebound in service consumption spending, anticipating that the Chinese stock market will return to an upward trend around next month.

The Wall Street Journal (WSJ) also analyzed that although the biggest market issue, the 'U.S.-China conflict,' has escalated from reconnaissance balloons to disputes over weapons support, its negative impact on the stock market is weakening.

Kerry Craig, Global Market Strategist at JPMorgan Asset Management, said, "It has become clear that the negative factor of U.S.-China tensions will not disappear from the market this year. However, China's economic growth potential, recovery in consumer demand, and undervalued corporate values will lead the market beyond geopolitical concerns."