Will the Chinese Funds Revived by China's Economic Stimulus Continue Their Upward Trend?

Funds Related to China Show Double-Digit Returns in the Past Month
Greater China 20.27%, China 17.02%, Chindia 11.79%
Recent Surge in Chinese Stock Market Due to Economic Stimulus Measures
Experts Say "Need to Confirm Economic Rebound"

As the Chinese stock market surged significantly following the Chinese government's large-scale economic stimulus measures, China-related funds also showed favorable returns, breaking away from their previous sluggish performance.

According to financial information provider FnGuide on the 4th, as of the 2nd, Greater China funds posted a one-month return of 20.27%, the highest level among major regional and country-specific funds. China funds followed with 17.02%, and India funds recorded 11.79%, with all China-related funds achieving double-digit returns.

During the same period, North American funds returned only 1.29%, Europe 0.99%, Japan 2.96%, India 1.48%, and Vietnam 1.12%, mostly staying in the 1-2% range.

The strong performance of China-related funds is due to the recent sharp rise in the Chinese stock market following the Chinese government's announcement of economic stimulus measures. The Shanghai Composite Index rose 21.37% over the week ending on the 30th of last month. In particular, buying surged ahead of the National Day holiday (October 1-7), with the index rising more than 8% in a single day on the 30th.

The Chinese government announced monetary policy measures such as reserve requirement ratio and policy interest rate cuts on the 24th of last month, followed by fiscal policy announcements on the 26th, raising expectations for economic stimulus. Woo Ji-yeon, a researcher at DS Investment & Securities, said, "The recent series of economic stimulus policy packages announced by the Chinese government have been effective in rekindling global investors' interest in the Chinese stock market, which had been neglected. Major indices in mainland China and Hong Kong have surpassed this year's highs and are on the verge of breaking last year's peak."

However, some opinions suggest that confirming actual economic improvement is necessary for further gains in the Chinese stock market. Kim Si-cheong, a researcher at Korea Investment & Securities, said, "For further rises in the Chinese stock market, confirmation of improvements in economic fundamentals is needed. We do not rule out the possibility of additional monetary and fiscal policy measures in the fourth quarter to achieve this year's economic growth target. Additional fiscal policies could be announced as early as late October."

Researcher Woo also analyzed, "Looking closely at the policies announced by the Chinese government, they are not significantly different from before. The market reaction seems excessively strong compared to the lukewarm policy intensity. For the rally in the Chinese stock market to continue, a rebound in the Chinese economy is essential. Unlike stock market participants who have recently started to view the Chinese economy optimistically, economists still maintain a pessimistic outlook on China's economy." He added, "It takes one to three months or more for the Chinese government's stimulus measures to be reflected in the real economy. Accordingly, policy momentum will continue to support the downside of the Chinese stock market for the time being, but until a clear improvement in Chinese companies' earnings appears, market volatility will increase depending on upcoming economic indicators, limiting further upside potential in the Chinese stock market."

With China’s stock market closed for the National Day holiday, the market after the holiday is expected to be influenced by National Day consumption trends. Researcher Kim said, "If the impact of weather decreases, this year's National Day holiday data is expected to be positive. Typically, the mainland stock market has risen more often than fallen after the National Day holiday, and this year, with more positive factors such as the stimulus package, new downtown duty-free shop policies, and regional consumption activation policies, the stock market is more likely to rise after the holiday."

Park Soo-hyun, a researcher at KB Securities, said, "The degree of recovery in Chinese consumer sentiment will determine the amplitude and duration of the stock market rebound. The market will focus on three key data points released after the stimulus announcement: National Day consumption data, October manufacturing Purchasing Managers' Index (PMI), and October Consumer Price Index (CPI)."