HSBC hikes China index targets by 20%, cites "unprecedented policy pivot"

Investing.com -- Risk appetite around Chinese equities has improved following the announcement of a raft of new stimulus measures last month, according to analysts at HSBC.

In a note to clients, the analysts said they had raised their year-end targets for large Chinese stock indices by an average of around 20%, adding that this implies a 14%-17% upside in the final quarter of 2024.

Chinese officials unveiled a sweeping package of new policies in September, including an outsized cut to interest rates and a reduction in existing mortgage costs.

The People's Bank of China also announced a swap program with an initial size of 500 billion yuan designed to give funds, insurers and brokers easier access to funding needed to purchase stocks. The PBOC also said it would provide up to 300 billion yuan in cheap loans to commercial banks in a bid to help them fund share purchases and buybacks by listed companies.

Chinese stocks rallied after the announcement. On Sept. 30, the last trading day before the Oct. 1 - Oct. 7 Golden Week holidays, equities in the country surged to their biggest single-day uptick in 16 years.

"The unprecedented policy pivot has addressed the major challenges facing China’s economy and stock market. It’s a sea change in mentality by policymakers, especially China’s central bank," the HSBC analysts wrote.

They added that regulators in China will likely roll out even more measures to sustain the momentum.

"Improving risk appetite and creating a wealth effect is just the first step, as reinvigorating the economy is the interim goal and structural reforms the ultimate long-term destination," the analysts said.

The market has also built in expectations for an additional 1 trillion to 2 trillion yuan in fiscal stimulus for the fourth quarter, as well as 4 trillion yuan to 5 trillion yuan annually from 2025, the analysts said.

However, on Tuesday, these hopes for a slew of fresh fiscal support were disappointed after China's National Development and Reform Commission -- the state economic planner -- stopped short of revealing such measures at a closely-watched press conference.

Chinese stocks subsequently pared back sharp gains notched after markets reopened following the Golden Week holiday.

Source: Investing.com