Fiscal stimulus will be the focal point for China's stock markets as they reopen on Tuesday.

• Lynn Song, ING's chief economist for Greater China, stated that optimism may persist, but at a slower pace, in the near future.
• Gary Ng, senior economist at Natixis, stated that the room for the market to continue rallying is "narrowing" and that real improvements in the economy are now necessary to justify the valuations.
• Shaun Rein, founder and managing director of China Market Research Group, stated that the key thing to watch for in Tuesday's meeting is whether the new measures will target the real economy.

On Tuesday, when mainland markets resume operations after a week-long holiday, Chinese investors seek clearer guidance from China's top economic planning authority.

On Tuesday at 10 a.m. local time, a group of senior officials from the National Development and Reform Commission, including chairman Zheng Shanjie, will provide updates on the implementation of stimulus policies at a press conference, as announced by the State Council on Sunday.

Beijing's economy is in urgent need of additional policy measures to achieve its annual growth target of "around 5%," which is closely monitored by economists and traders.

In the days leading up to the week-long holiday, officials announced a series of stimulus measures, including reduced interest rates, relaxed bank reserve requirements, looser property purchase guidelines, and market liquidity support.

The Chinese stock market has experienced a surge of over 25% in major indexes as investors are optimistic about the stimulus measures. In contrast, Hong Kong stocks reopened last week and surpassed 23,000 on Monday for the first time since 2022.

Since September 30th, futures contracts linked to the MSCI China A50 Connect Index, which monitors 50 mega-cap stocks in the A-share market, have experienced a nearly 15% increase, reaching 2,536.6 as of 2:30 p.m. on Monday. Additionally, the SGX FTSE China A50 Index futures also experienced a 12.7% increase to 15,672 during the same holiday period.

Speculating rally

The market is eagerly awaiting specifics on Beijing's fiscal spending increase, as announced on Sept. 26, according to Erica Tay, director of macro research at Maybank Investment Banking Group. It is crucial for the NDRC to provide details to satisfy the market's expectations.

Despite reports of plans to support growth, the Ministry of Finance is not participating in Tuesday's presser and has not yet announced major policies. Now, the government needs to add fiscal stimulus to maintain the rally's momentum, said Shaun Rein, founder and managing director of China Market Research Group. Rein emphasized that the key thing to watch for in Tuesday's meeting is if the new measures target the real economy.

Lynn Song, ING's chief economist for Greater China, stated that policymakers may continue to implement supportive policies to capitalize on the positive momentum resulting from the long break, although the optimism may slow down at a less intense pace.

The success of the rally is contingent on the prompt and forceful execution of previously declared policies and the timely introduction of additional support measures by policymakers to enhance consumer trust and stimulate economic growth, according to Song.

"The optimism could falter if any of these things fall short," he stated.

Song stated that A-shares have been trading above historical valuation levels and are approaching the upper end of a "reasonable range." A-shares are stocks listed on the exchanges in Shanghai or Shenzhen.

Gary Ng, senior economist at Natixis, stated that the room for the market to continue rallying is "narrowing." He added that real improvements in the economy are now necessary to justify the valuations.

The NDRC is expected to reveal the precise additional fiscal policy on Tuesday, with a focus on real estate and consumption.

Expectations running wild

Some experts, including Hong Hao, partner and chief economist at Grow Investment Group, predict that the Tuesday presser will likely disappoint, causing the market to open higher but eventually settle lower.

Officials could repeat previous announcements and provide details on plans for the unused bond issuance quota, which is over 3 trillion yuan ($427.4 billion), as he pointed out.

Eugene Hsiao, head of China equity strategy at Macquarie Capital, stated that while China frequently employs fiscal stimulus, its effectiveness is often limited due to a lack of actual mechanism to boost wages, consumption, and consumer confidence.

Morgan Stanley's economists anticipate a 2-trillion-yuan fiscal package that could aid local government finances, bank recapitalization, and increase consumption, as reported by FactSet. The bank suggests that a smaller-than-anticipated package may indicate Beijing's dedication to ending deflation and promoting growth.

According to FactSet, UBS forecasts a fiscal package of 1.5 trillion to 2 trillion yuan for this year, with a follow-up of 2 trillion to 3 trillion yuan in 2025.

If Beijing implements its anticipated fiscal support, the market could experience significant growth. Citibank has raised its forecast for Hong Kong's Hang Seng Index, predicting it could reach 26,000 by June 2025. The bank expects Beijing's economic stimulus measures to exceed market expectations, with a 3-trillion-yuan consumption support package to be announced soon.