China's Stimulus Surge: A Short-Lived Rally?
In late September, we published a piece titled China A50 Stimulus Surge, detailing how Beijing’s aggressive fiscal and monetary policies could spark a powerful rally in the China A50 index. At its peak, the index gained more than 40%, breaking free from months of downward pressure. However, the rally has lost momentum in recent days, with the index now down 16% from its October highs. So, what’s behind this sudden shift?
Stimulus Optimism: A Double-Edged Sword
The excitement began to fizzle on October 8th, following an underwhelming briefing from the National Development and Reform Commission (NDRC). While the commission pledged $28 billion to local governments and vowed to accelerate fiscal spending, it wasn’t enough to sustain investor enthusiasm. Markets had been hoping for more significant measures to follow the September stimulus, and without those, the optimism was short-lived – triggering a bout of profit taking following the near exponential rally.
China A50 Back at Key Technical Levels
From a technical perspective, the China A50 index is now trading back at the VWAP (volume-weighted average price) anchored to the pre-breakout lows. This level, which has the potential to act as a strong support zone in pullbacks, will be crucial to watch. It reflects a battle between short-term traders who are taking profits and longer-term investors who might see this as an entry point following the sharp correction.
However, it’s worth noting that while the index has pulled back to a key support zone, there remains uncertainty around whether the fundamental catalysts are strong enough to reignite bullish momentum.
CN50 Daily Candle Chart
Past performance is not a reliable indicator of future results
What to Watch Going Forward
Now that the China A50 has returned to its anchored VWAP, the market could consolidate at these levels as it digests the recent stimulus measures. For any sustained rally to take hold again, more aggressive policy actions, like consumption vouchers or further infrastructure spending, may be required. Investors will be keeping a close eye on any new announcements from Beijing, especially as China seeks to meet its year-end growth targets.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Stimulus Optimism: A Double-Edged Sword
The excitement began to fizzle on October 8th, following an underwhelming briefing from the National Development and Reform Commission (NDRC). While the commission pledged $28 billion to local governments and vowed to accelerate fiscal spending, it wasn’t enough to sustain investor enthusiasm. Markets had been hoping for more significant measures to follow the September stimulus, and without those, the optimism was short-lived – triggering a bout of profit taking following the near exponential rally.
China A50 Back at Key Technical Levels
From a technical perspective, the China A50 index is now trading back at the VWAP (volume-weighted average price) anchored to the pre-breakout lows. This level, which has the potential to act as a strong support zone in pullbacks, will be crucial to watch. It reflects a battle between short-term traders who are taking profits and longer-term investors who might see this as an entry point following the sharp correction.
However, it’s worth noting that while the index has pulled back to a key support zone, there remains uncertainty around whether the fundamental catalysts are strong enough to reignite bullish momentum.
CN50 Daily Candle Chart
Past performance is not a reliable indicator of future results
What to Watch Going Forward
Now that the China A50 has returned to its anchored VWAP, the market could consolidate at these levels as it digests the recent stimulus measures. For any sustained rally to take hold again, more aggressive policy actions, like consumption vouchers or further infrastructure spending, may be required. Investors will be keeping a close eye on any new announcements from Beijing, especially as China seeks to meet its year-end growth targets.
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.67% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Disclaimer
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