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In recent weeks, China's A-share market has experienced a dramatic surge, ignited by a series of anticipated policy measures aimed at stabilizing economic growthAfter a period of subdued performance, the market has reawakened, reflecting renewed investor interest and heightened trading volume that have continuously shattered previous recordsForeign capital has also increasingly seized opportunities within the Chinese asset space, fearing that a significant rally might leave them behind in what is feeling increasingly like an investment 'feast.'

Between September 24 and 30, the Shanghai Composite Index skyrocketed by an impressive 21.3%, effectively entering what analysts refer to as a “technical bull market.” This series of rapid gains was accompanied by a dramatic increase in transaction volume, with trading on September 30 hitting a staggering 2.59 trillion yuan— an absolute record

The momentum continues unabated; even with the market closure during the National Day holiday, international funds showed unrelenting enthusiasm for Chinese assets.

According to updates from early October, the Hong Kong Hang Seng Index surged approximately 9.3%, and FTSE China A50 index futures saw an almost 14% gainThe interest in these markets prompted an explosion in the number of outstanding contracts for FTSE China A50 index futures, which soared to an unprecedented 1.2 million lotsRemarkably, during this time, despite a 2% rise in the US dollar index, the renminbi remained resilient.

As the A-share market resumed trading after the holiday on October 8, it reached a peak of 3,674.4 points, with combined transaction volumes exceeding 3.45 trillion yuan—another new recordSince the beginning of 2024 through October 8, the Shanghai Composite Index rose by 17.3%, while the CSI 300 Index saw a remarkable increase of 24%, leading many global markets in performance.

Investment firms around the world have also taken note of this recovery and shifted their outlooks

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Prestigious financial institutions like Goldman Sachs and Citigroup have raised their forecasts for both A-shares and Hong Kong stocks significantlyObservers have noted a trend of reallocating global capital, which appears to be diminishing allocations to Indian equities in favor of Chinese markets.

The prevailing consensus among market participants is centered around policies aimed at stabilizing growthMany are looking forward to an even stronger fiscal policy that will complement the series of recently introduced monetary and real estate policiesHowever, uncertainty remains regarding the extent of potential interest rate cuts, the amount of liquidity the central bank is willing to provide to the market, and the scale of forthcoming fiscal measures.

Despite the tremendous short-term gains in the A-share market, analysts unanimously agree that overall valuations remain relatively cheap

Should the impact of heightened policy measures begin to manifest in better economic conditions, there is considerable potential for further upward movement in the marketHowever, there's an understanding that while favorable policies take effect, tangible improvements in the economy may require timeInvestors are thus encouraged to maintain a rational perspective and focus on sectors that stand to benefit from these policies and have stable underlying fundamentals.

Interestingly, the shift in foreign investment sentiment towards Chinese assets is notable, especially following years of skepticism driven by rising interest rates in the USMany foreign investors opted for markets like India and Japan during those periodsRecently, however, there has been a paradigm shift, with optimistic views on Chinese assets gaining traction.

Goldman Sachs' recent research highlighted that should supportive policies from the Chinese government continue, there is further potential for a valuation recovery of Chinese assets

Historical data suggests a strong correlation between fiscal looseness and valuation expansion, indicating that economic responsiveness to policy changes could enhance earnings growth beyond current conservative forecasts, further supporting valuation increasesThis has prompted Goldman Sachs to upgrade their target for the CSI 300 index from 4,000 to 4,600 points.

Ray Dalio, founder of the world's largest hedge fund, Bridgewater Associates, echoed similar sentiments regarding China's economic strategyHe described recent policy developments as a uniquely Chinese version of an optimal deleveraging process, likening it to the European Central Bank's measures during the European debt crisis in 2012, asserting that this week could be historically significant, potentially lasting in the annals of market economies.

Dalio elaborated that by crafting an effective deleveraging plan, China's approach could alleviate its debt burdens in a manageable manner while proactively enhancing productivity

Citigroup has likewise expressed strong confidence in the A-share market, affirming that even post the recent surges, A-shares still exhibit vast potential for growthTheir projections for the Hang Seng Index have been raised by 24% in anticipation of reaching 26,000 points by the end of June 2025, and they’ve set an even loftier target of 28,000 by the close of 2025.

This bullish outlook on Chinese assets is even influencing markets beyond its borders, such as IndiaThe capital flow dynamics have shifted notably, with foreign funds increasingly directing their resources into Chinese assets, which has contributed to a decline in the Indian Nifty index by 4.5%—the worst weekly performance since June 2022. The allure of China's improved market performance and relatively attractive valuations are among the foremost reasons for this capital exodus.

Morgan Stanley observed that a new wave of retail investors is driving the market up, as evidenced by a significant increase in new retail accounts, signaling growing participation among individual investors

Should the allocation of equities within household portfolios return to levels seen in 2020-2021, it could translate into a staggering influx of 2 to 3 trillion yuan into the stock market.

As analysts from CICC noted, the early stages of the market rebound have primarily attracted passive capital such as ETFs, along with trading capital like hedge fundsAs the market progresses upward, passive funds remain a dominant force, while trading capital shows signs of short-coveringIf actively managed funds catch up and shift from underweight to neutral weight, it could lead to a potential influx of around $74 billion into the market in the long term.

To sum up, there is widespread consensus and hope among market stakeholders regarding the recent surgeAccording to CICC, this round of bullish sentiment has primarily emerged from shifts in both policy and investor expectations, amplified by emotional trading and short-covering dynamics

During the National Day break, the market's rally noticeably reduced short-selling pressure in Hong Kong, prompting investors to reevaluate their allocations ahead of the potential for further gains.

Currently, with monetary policies, real estate strategies, and capital market directives visibly in motion, attention is now diverted toward whether fiscal policies will continue to exert a substantial impactThe primary query revolves around the potential scale of fiscal interventions.

The anticipation for robust fiscal policy stems from the understanding that while both monetary and fiscal policies serve as macroeconomic tools, their implications for the economy differ considerablyMonetary policy tends to influence indirectly, often stimulating personal consumption and corporate investment by lowering funding costs, though its effectiveness is contingent on the responsiveness of individuals and firms to interest rate changes

When balance sheets are under pressure, sensitivity to rates may diminish, extending the duration required for monetary policy to resonate through the economy.

In contrast, fiscal policy’s impact is more direct, particularly in stabilizing aggregate demandIncreased fiscal expenditure is quickly translated into economic incrementsYangtze River Asset Management's research director, Duan Chenyu, indicated that during periods of balance sheet strain, both households and enterprises struggle to engage in counter-cyclical expansionThus, the upsurge in fiscal spending can effectively create total demand, demonstrating more efficacy in counter-cyclical policies.

In light of this urgent market movement, ongoing objectivity and a calm approach are paramountThere remain burdens of uncertainty, particularly given that moderate nominal growth in the third quarter may exert pressure on corporate earnings this quarter