The three-prong package consisted of a cut in the Reserve Ratio Requirement, a cut in the existing mortgage rate and permitting loans by corporations to undertake stock buy backs. The result was successful, delivering a dramatic 29.6% surge in equities in September. It has also produced the best Q3, and YTD returns across regional markets.
Exhibit 1: Chinese equity returns – from laggard to leader
However, this move needs to be put in a longer context
Exhibit 2 compares the 10-year total returns (USD) for some of the major equity markets/regions. While the recent spike in Chinese equities is dramatic and, could be argued, breaks the downtrend that has been in in place since 2021, it has only managed to push Chinese 10 year returns (+54.8%) above those of the UK. They remain substantially below the +238% return delivered by US equities.
Exhibit 2: Still with lots of room to play catch-up in terms of Total Return delivery
The Q3 rally was due to the substantial contribution from 3 sectors
Exhibit 3 compares the sector weighted performance contribution in Q3 across the regions. It shows that almost 2/3rds of the 27.6% Chinese equity return in Q3 was delivered by the contribution of three sectors, Financials, Real Estate and most notably Consumer Goods.
Exhibit 3: Sector weighted performance contributions across the regions in Q3
Source: Wilshire Indexes. Data as September 30, 2024.
