In China, fiscal-stimulus spending fuels a surge in stocks
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
The U.S. fiscal-stimulus package hasn’t stirred much excitement on Wall Street.
Chinese investors, by contrast, seem giddy over their government’s spending plans.
China’s stock markets, the world’s best performers so far this year, added to their gains in Friday’s session as investors bet on a pickup in economic growth this year after last year’s slowdown.
The Shanghai composite index was up 3.2% in late trading, lifting its year-to-date gain to 27.5%. The Shenzhen market index was up 3.6% in the session and is up 35.4% for the year.
In the U.S., stocks have mostly struggled. The Standard & Poor’s 500 index is down 7.5% for the year.
The Chinese government in November pledged 4 trillion yuan, or about $590 billion, in stimulus spending. The U.S. plan, now awaiting Congress’ final OK, is worth $787 billion. Because China’s economy is about half the size of the U.S. economy, Beijing’s plans potentially pack more punch.
Bloomberg News reports:
China is trying to reverse an economic slide that has already cost 20 million jobs, raising the risk of social unrest as exports plunge and the property market sags. Spending on roads, railways and housing has increased prices for iron ore, put a floor under industrial output and helped to drive a record $237 billion of new [bank] loans in January. ‘China looks set to be the first major economy to recover from the current global meltdown,’ said Lu Ting, an economist with Merrill Lynch & Co. in Hong Kong. ‘China is the only economy in the world to see significant growth in credit to corporate and household sectors after September 2008, when the financial crisis worsened to a near collapse.’ The government’s stimulus plan is beginning to gather momentum. Projects such as the building of 3.5 billion yuan of public houses in Shaanxi province and Shanghai began in December, while Shandong province started work on three new railway lines the same month.
Unfortunately, China’s hot market gains aren’t helping many U.S. investors in China-region mutual funds sold here. The average China-region fund was down 6.3% year-to-date through Thursday, according to Reuters.
I suspect that reflects that many of the funds are heavy in Hong Kong shares, which aren’t tracking the Shanghai or Shenzhen rallies. The Hang Seng stock index in Hong Kong is off 6% for the year.
Some analysts already are warning that Chinese stocks are overheated. Brokerage UBS on Friday cut its overall rating on China’s markets to ‘hold’ from ‘buy’ and advised clients to look at shares in Taiwan, where the market is flat this year.
-- Tom Petruno