Beijing’s $278 Billion Support Package Propels Hang Seng Index to New Heights

Hong Kong’s Hang Seng index had a bit of a rollercoaster ride recently, plummeting to 14-month lows only to bounce back on Tuesday, thanks to some encouraging news. Reports that Beijing might be considering a massive $278 billion support package to prop up the country’s beleaguered stock market had investors breathing a sigh of relief. The plan involves tapping into a hefty 2 trillion yuan from the offshore accounts of Chinese state-owned enterprises to create a stabilization fund. This news provided a much-needed boost, as market concerns have been mounting with worries about sluggish economic growth, a crisis in the heavily-indebted property sector, and escalating tensions between Beijing and Washington.

The Hang Seng index surged 2.6% following this report, while the Shanghai Composite also saw a 0.5% uptick. The iShares MSCI China ETF MCHI, which had been taking a beating with an 11.9% decline for the month, perked up by 1.3% in U.S. premarket trading. The Hang Seng had closed on Monday at its lowest level since October 2022, with losses of 12% since the start of the year. Meanwhile, the mainland Shanghai Composite hit its lowest in almost four years, shedding about 7% in 2024. However, some analysts remain cautious, expressing doubts about whether the proposed fund would be sufficient to sustainably lift Chinese equities.

Kathleen Brooks, research director of XTB, highlighted the mammoth task ahead, pointing out that the proposed fund pales in comparison to the staggering $6 trillion that has been wiped off Chinese and Hong Kong shares since their 2021 peak. “It is worth noting that the current size of this fund is dwarfed by the $6 trillion that has been wiped off of Chinese and Hong Kong shares since their peak in 2021,” Brooks cautioned. “Thus, it could take much more than this package to stabilize the Chinese share market in the long term,” she added.

Despite the initial market enthusiasm, it’s evident that the road to recovery for Chinese equities may be a bumpy one. Investors and analysts will undoubtedly be keeping a close eye on how events unfold in the coming days and weeks. The potential impact of this monumental support package will be closely scrutinized, as the market braces itself for what could be a pivotal turning point for Chinese stocks.