The View | Don’t expect China’s economic stimulus measures to continue to drive global markets

It has been quite a while since Chinese equities enjoyed a nearly week-long rally. Since last Monday, the CSI 300 index of mainland shares has shot up nearly 7 per cent, putting it on track for its longest rebound since February, according to data from Bloomberg. The world’s other leading equity markets also had a good start to the month, following a brutal sell-off in October. Since last Monday, the benchmark S&P 500 index is up more than 3 per cent while the Stoxx Europe 600 index was up more than 2 per cent.

Among the triggers for the tentative recovery in Chinese shares was last Wednesday's signal from Beijing that it planned to introduce further stimulus measures in response to persistently weak economic data. A gauge of new orders for exports fell deeper into contraction territory last month in a sign that the trade war is taking its toll on manufacturing activity. While China has been easing policy over the past several months, mainly in the form of tax cuts and regulatory relief, investors have been disappointed with the modest and incremental steps taken so far.

The global rallies that followed the launch of previous rounds of Chinese stimulus, notably in 2011-12 and 2015-16, showed that policy easing in the world’s second-largest economy has the potential to significantly improve sentiment. Even the “mini-stimulus” introduced last July, which included injections of liquidity into China’s banking system and more support for infrastructure projects, was partly responsible for the strongest upturn in global markets since last January, measured by the monthly gains in equity and corporate debt markets.