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China's Policy Shift: How Singapore Investors Can Capitalize on Chinese Concept Stocks？

China's latest monetary and fiscal policy shift towards "moderate easing" marks the first relaxation since 2011. This strategic change is expected to reshape market dynamics, potentially boosting the performance of Chinese concept ETFs in Singapore and global markets. 

Strategic Shifts in China's Monetary and Fiscal Policies for 2024

The Political Bureau of the CPC Central Committee unveiled a shift in China's monetary approach, adopting a "moderately accommodative" policy for the upcoming year. This strategic pivot, the first easing since 2011, was complemented by introducing "unconventional" counter-cyclical adjustments, indicating a significant departure from prior policies. The meeting also heralded more assertive fiscal strategies and a focus on enhancing consumption, investment efficiency, and expanding domestic demand. These policy shifts are poised to reshape market dynamics, potentially boosting China-focused ETFs in Singapore and global markets by altering investor expectations and economic forecasts.

Short-Term Impact of Recent Chinese Policy Changes on Singapore's ETF Market Performance

Over the past two months, amidst further stimulus measures for the Chinese economy, growth and technology-focused equity ETFs have outperformed broad-based index ETFs listed on the Singapore Exchange. Stimulus Measures Announced from October to November:

– October 8: The NDRC advanced 100 billion yuan from the 2025 fiscal budget.

– October 12: The MOF proposed increasing the debt ceiling for local governments to manage "hidden debts" and enhance the use of special-purpose bonds.

– October 18: Q3 2024 GDP was reported at 4.6% YoY, marginally surpassing the 4.5% forecast, with a fixed deposit rate cut of 25 basis points to 1.1%.

– October 21: The People's Bank of China reduced key lending rates more than expected; the 1-year LPR was cut from 3.35% to 3.10% and the 5-year LPR from 3.85% to 3.6%.

– November 12: The NPC approved a 10 trillion yuan initiative for local governments to address off-balance sheet debt and support regional government property purchases.

Navigating Market Dynamics: How Policy Changes Impact Chinese Concept Stocks

China is the world's second-largest economy and its growth rate continues to lead most countries globally. According to the IMF's World Economic Outlook released in July 2024, China's GDP growth for the year is projected at 5.0%, higher than the 1.7% for developed economies and 4.3% for emerging markets. Given these robust economic forecasts, how might these changes impact Chinese stocks?

1. Enhanced Market Confidence: 

Shifting towards a more accommodative monetary policy could lower borrowing costs and increase market liquidity. For Chinese concept stocks, this might lead to increased capital inflows and higher stock valuations. Investors may view these policy adjustments as a commitment to maintaining economic growth, thus boosting confidence and attracting more foreign investment.

2. Increased Trading Activity: 

Chinese concept stocks are likely to benefit from policy changes aimed at stimulating domestic demand and consumption, which can improve earnings forecasts for companies focused on the Chinese market. Consequently, ETFs that focus on Chinese concept stocks may see improved performance due to increased investor interest and the improved fundamentals of the underlying assets.

3. Volatility and Speculation: 

Although the initial reaction to policy relaxation may be positive, the market might experience increased volatility as investors speculate on the long-term impacts of these policies. This could affect the performance of Chinese concept stocks. Investors need to closely monitor further policy announcements and economic indicators to manage these conditions.

For investors interested in China but unfamiliar with specific Chinese stocks, Singaporean investors might consider U.S.-listed China ETFs or China-focused ETFs listed in Singapore. Here are the top 3 performing China-focused ETFs in Singapore and the United States this year (chart attached below) :

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