The Chinese stock market recorded the largest surge since 2008 after the government injected a $114 billion stimulus into the market. The CSI 300 index rose 15.7% over the week.
$114 Billion in Liquidity
On Tuesday, the People’s Bank of China announced an 800 billion Yuan ($114 billion) lending pool. This money is to help companies buy back their own shares and allow non-bank financial institutions like insurance companies to purchase local stocks. The idea is simple: flood the market with liquidity and keep it moving. By Friday, the CSI 300 index had jumped 4.5%.
Frenzy in the Markets
Trading floors in Asia were buzzing. This week, Hong Kong's Hang Seng index surged by 13%, marking its biggest rise since 1998. European luxury goods companies viewed this as a positive sign, anticipating more spending from the Chinese middle class. U.S. markets also reacted positively, with the S&P 500 setting record highs three times this week. However, some restrictions remain in place. In August, Chinese authorities limited daily data flows from the Hong Kong Stock Connect program, which shows foreign investor activity in mainland stocks.
Rising Commodity Prices
The stimulus boosted commodity prices. Copper, aluminum, and zinc all saw increases, driven by China's massive consumption due to its manufacturing sector. Copper rose more than 5% since Tuesday, breaking through $10,000 per tonne, the highest level in three months. Iron ore also experienced a rise, despite recent price lows.
All eyes are on what happens next. There is a belief that Chinese markets could continue to rise, especially with the weakening dollar and the potential shift of investments into cheaper emerging markets.
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