To The Moon

As an investor closely monitoring the Chinese stock market, I am intrigued by the recent policy announcements from the Peoples Bank of China on May 7, 2025. Governor Pan Gongsheng revealed a 0.5% point reserve requirement ratio cut, injecting around 1 trillion yuan of long-term liquidity into the market, alongside upcoming policies to support small and medium enterprises. This has sparked a surge in Chinese assets, and I am wondering if this stimulus can replicate the sharp rally in Chinese concept stocks we witnessed on September 24, 2024. With some arguing that major tech stocks remain undervalued, I am diving into the potential implications of these developments.

Governor Pan Gongsheng

My Reaction to the Peoples Bank of China Policy Announcement

I find the Peoples Bank of China decision to cut the reserve requirement ratio by 0.5% point quite significant. Injecting 1 trillion yuan of long-term liquidity into the market is a bold move to stimulate economic activity, especially after a period of uncertainty. The additional promise of policies to support financing for small and medium enterprises further boosts my confidence, as these businesses are often the backbone of China economic growth. Last year, a similar stimulus on September 24, 2024, led to a dramatic rally in Chinese concept stocks, with the Hang Seng Index jumping 4.1% in a single day. Seeing Chinese assets surge in response to these new policies makes me cautiously optimistic, but I am also mindful of the broader global economic context that might influence the outcome this time.

Bank of China

Are Chinese Concept Stocks Truly Undervalued?

The post mentions that some believe Chinese concept stocks, particularly major tech stocks, are still at low levels and remain undervalued. I tend to agree with this sentiment to some extent. For instance, looking at companies like Alibaba $Alibaba(09988)$  and Tencent $TENCENT(00700)$  , their price-to-earnings ratios are currently around 15 times and 20 times, respectively, as of early May 2025, which is relatively low compared to their historical averages of 25 times and 30 times. Despite regulatory challenges and geopolitical tensions, these companies have shown resilience, with Alibaba reporting a 6% year-on-year revenue growth in its latest quarter, driven by its cloud and e-commerce segments. The Hang Seng Tech Index, which tracks major Chinese tech firms, is still down 10% year-to-date as of May 7, 2025, suggesting there might be room for upside if investor sentiment improves. I am encouraged by this undervaluation, but I am also aware that external factors like United States tariffs could cap the potential rally.

Chinese stocks

Can This Stimulus Replicate the September 2024 Rally?

I am reflecting on whether this round of policy stimulus can replicate the sharp rally we saw on September 24, 2024. Back then, a stimulus package that included a reserve requirement ratio cut and targeted support for the property sector led to a 20% surge in the Hang Seng Index over the following two weeks. The current environment, however, feels different. While the 1 trillion yuan liquidity injection is substantial, global headwinds such as United States Federal Reserve rates at 4.25% to 4.5% and potential trade tensions under the Trump administration could dampen foreign investor appetite for Chinese stocks. On the positive side, domestic investor confidence seems to be rising, with the Shanghai Composite Index gaining 2.5% today, May 7, 2025. I think a rally is possible, but I am not expecting it to match the magnitude of last September unless we see more aggressive fiscal measures or a resolution to trade uncertainties.

Risks and Challenges I Am Considering

While I am optimistic about the potential for a rally, I cannot ignore the risks. Geopolitical tensions, particularly with the United States, remain a concern. The Trump administration recent tariffs have already impacted Chinese exporters, and any escalation could hurt corporate earnings and investor sentiment. Additionally, the Peoples Bank of China stimulus might take time to filter through the economy, and if small and medium enterprises do not see immediate benefits, the market response could be muted. I am also keeping an eye on inflation—China consumer price index rose 0.5% year-on-year in April 2025, and excessive liquidity could fuel inflationary pressures, prompting the Peoples Bank of China to tighten policy later, which might spook markets. These factors make me cautious about expecting a repeat of last year rally without more clarity on these risks.

People's Bank of China

My Investment Strategy Moving Forward

Given the current policy support and the undervaluation of Chinese concept stocks, I am considering increasing my exposure to the Chinese market, but I will proceed with caution. I am particularly interested in tech stocks like Tencent and JD.com $JD-SW(09618)$  , which have strong fundamentals and could benefit from improved domestic consumption driven by this stimulus. However, I plan to wait for more details on the small and medium enterprises financing package before making any significant moves, as its implementation will be key to sustaining market momentum. I am also diversifying my portfolio to mitigate risks, keeping some exposure to defensive sectors like consumer staples in case global uncertainties weigh on the rally. Overall, I am hopeful that this stimulus can drive a meaningful uptick in Chinese stocks, but I am not expecting a repeat of the September 2024 surge unless additional catalysts emerge.

@TigerStars  @Tiger_SG  @Tiger_comments  @TigerClub  @Daily_Discussion