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Talk in China Wednesday turned to how much of the country’s multi-billion warchest the government is about to use to stimulate its flagging economy.
Rumors of a Chinese government stimulus have been buoying investors lately in Hong Kong as stocks remain some of the cheapest they have been in years. It is now expected by the market that the Chinese government will pour in an additional 1 trillion RMB ($137 billion) to shore up its local economy. An announcement on potential bailout plans is expected to come as soon as later this month.
Li Bei, founder of $1.8 billion asset manager Shanghai Banxia Investment Management Center, added to the speculation by suggesting that the government start a fund with the specific aim of snapping up flailing stocks in Hong Kong and China and ending what she called a “vicious cycle” of declining valuations.
Year-to-date, Chinese stocks are performing much weaker than their international peers. The iShares China Large Cap ETF (NYSE:FXI) is down 8.3% vs. the SPDR S&P 500 ETF (NYSE:SPY) which has risen 14% during 2023.
In a WeChat post that was later deleted, Li pointed out that if such a stock-buying fund was set up, the annual dividend return based on the present value of Chinese stocks would be around 3.5% vs. 2.3% costs to set up and run the fund. That would mean a 1 trillion RMB fund would generate a net profit of 12 billion RMB, making a stock stimulus profitable for the government to implement at current prices, Li said.
The newly anticipated stimulus follows on the back of regional refinancing efforts China’s government has put in place in local districts across the country. Caixin, China’s largest business daily, reported Tuesday that six provinces - Inner Mongolia, Tianjin, Liaoning, Chongqing, Yunnan, and Guangxi – have already refinanced 320 billion RMB in debt with new bonds.
The extra refinancing costs around the country are expected to push China’s special local bond issuances to its highest level on record, over the 4.04 trillion RMB reached in 2022. Year-to-date, special local bond issuances stand at 3.8 billion RMB.
Hong Kong and Chinese shares rebounded sharply Wednesday amid all the chatter about bailouts for property developers and stimulus measures for dwindling stocks.
Country Garden Holdings Company Limited (OTC:CTRYF) gained back 4% after plunging 11% Tuesday when it said that it would seek to renegotiate its debt repayments with offshore creditors. Caixin reported that the company’s president had resigned in July and left the company in younger hands since, giving hope to investors that a solution with the company’s creditors could still be reached.
Other property developers fared similarly as investors snapped up beaten-down real estate develop stocks on speculation that the Chinese government will step in. China Evergrande Group (OTC:EGRNF) soared 22%, Sunac China Holdings Limited rose 4% and Shimao Group Holdings Limited jumped 4.7%.
Evergrande’s EV spin-off China Evergrande New Energy Vehicle Group Limited (OTC:EVGRF), which was reinstated this week after a trading suspension late September, ended the day up 18.6%. Other EV names also did well, with XPeng Inc (NYSE:XPEV) Inc 3% higher and NIO Inc. (NYSE:NIO) 5.6% stronger.
