Chinese Stocks Surge Following GDP Target Announcement

Chinese stocks surged today after the government announced its gross domestic product (GDP) target for 2025 and outlined new stimulus measures aimed at revitalizing the struggling economy. The Hang Seng index in Hong Kong increased by 2.8% as investors reacted positively to the news.

Futu Holdings (Futu) saw its shares rise by 12%, while GDS Holdings (GDS) shares climbed 10%. New Oriental Education & Technology (New Oriental) also experienced a boost, with an increase of approximately 6%.

Higher Budget Deficit Projected by Beijing

The Chinese government revealed plans to set a GDP growth target of 5%, matching their medium- to long-term goals. They also announced a deficit-to-GDP target of 4%, which is an increase of 1% from the previous year. This deficit would mark the highest level since 2010 as reported by various sources.

In addition to the GDP target, China detailed various stimulus initiatives. This includes plans to issue nearly $179 billion in long-term treasury bonds, around $69 billion in bonds designated to bolster large commercial banks, and $610 billion in special-purpose bonds aimed at assisting local governments facing financial difficulties.

According to Vey-Sern Ling, a managing director at Union Bancaire Privee, the initiatives create a clear intention to support the economy, stating, "There's nothing to nitpick. Just a robust growth target and a clear intention to support the economy," as noted by Bloomberg. This to many analysts is seen as reassuring for market stability.

Furthermore, the government's report mentioned plans to enhance cooperation in the science and technology sectors. They affirmed their commitment to comprehensive reforms in investment and financing within the capital markets, encouraging the influx of long- and medium-term capital, while also bolstering strategic resource reserves and market stabilization mechanisms.

This economic plan is being released amidst escalating tensions in a trade war with the United States. There have been significant tariff increases on Chinese imports, with rates rising to 20%. In response, Chinese officials have adopted a less confrontational stance toward tariffs, likely due to concerns over the fragile economy, although they are also preparing to respond as necessary.

Effect of Stimulus on Market Sentiment

Chinese stocks faced challenges during the early part of the year due to economic deflation and a struggling housing market. However, rising optimism around China's artificial intelligence capabilities has started to lift the sector as of late. Typically, government stimulus has a positive effect on stock prices, particularly as the government continues its favorable policies towards the tech sector.

Futu operates as a digital wealth management platform, allowing both Chinese citizens and international investors to engage in stock trading across various exchanges, including those in the U.S. and Hong Kong. GDS Holdings specializes in data centers across China and Southeast Asia and has greatly benefited from the ongoing AI trend. New Oriental provides online education services and tutoring. Both Futu and GDS have seen substantial growth over the past year and tend to trade at more attractive valuations compared to some of the larger tech companies in the U.S.

Although the trade war continues to create uncertainty, Chinese stocks are beginning to show signs of recovery, offering potential opportunities for investors. It is important to bear in mind the ongoing struggle of the Chinese economy and the government's ambitious GDP target. Therefore, a long-term investment strategy may be advisable.

Bram Berkowitz has no ownership in any of the mentioned stocks. The information provided here is for informational purposes only.

Chinese, Stocks, Economy