China Stock Market: Uncovering the Impact of Stimulus on Chinese Stocks

The Stakes of Timing in the China Stock Market

Beijing's big-bang stimulus may have restored more than $3 trillion of value to Chinese stocks, but not everyone has been fortunate enough to reap the windfall, especially those who timed their exit before the rally took hold. Retail giant Walmart sold 144.5 million of JD.com’s US-listed shares at $24.95 each last month, missing out on potential gains of $2.8 billion had it held on to its stake for another three weeks.

Missed Opportunities in Chinese Stocks

• Prosus dumped 14.5 million shares of Trip.com at $51.40 each, losing $225 million in potential gains.
• Baidu lost $123 million from selling 10.5 million shares in the travel agency last week.
• Tencent Holdings regretted selling its stake in Futu before a 34% surge, missing out on $85 million.

These badly timed exits have led to missed opportunities of more than $3.3 billion, highlighting how Beijing’s massive stimulus package caught China bears off guard. A 27% rally in the CSI 300 Index, which tracks the performance of the 300 largest stocks on the Shanghai and Shenzhen bourses, has put the squeeze on short-sellers, costing them $6.9 billion in mark-to-market losses, according to S3 Partners.

China's Position in the Global Market

In total, over $3 trillion in market value has been restored in Chinese stocks since Beijing unveiled its biggest stimulus bazooka to halt the decay in the property and stock markets. This has helped China reclaim the largest share of weight in the MSCI Emerging Markets Index at 27.8%, up from 24.4% in August.

Mark Mobius, a legendary emerging markets fund manager, remarked, "China’s stimulus is fast and furious. The scope and timing of this package caught many investors off guard." He noted the measures have provided a surge of confidence in the markets.

Future Outlook for Chinese Stocks

While the rally presents opportunities, questions remain about the sustainability of this momentum. The MSCI China Index is still 45% lower than its 2021 peak, with ongoing concerns about China’s economic growth, regulatory uncertainties, and geopolitical tensions posing risks to investor confidence. However, BCA research suggests that "bad news could be good news" for Chinese stocks, as weak economic performance could lead to further equity gains.