Investor sentiment across the globe has been given a fresh shot in the arm by China’s new round of stimulus measures. These measures, aimed to invigorate its slowing economy, have sent a spark across the financial markets that has resulted in a robust rally in stocks and commodities. With a powerful display of Beijing’s monetary levers at work, the global markets are absorbing the potent energy this stimulus brings. But a lingering question remains: will this thriving energy sustain, or will it sink into oblivion?
China’s pronounced economic slowdown, exacerbated by the long-drawn trade war with the US, has had a ripple effect on global economies and markets. Beijing’s response has been a streamlined approach to restart the growth engine. The stimulus package includes measures such as cutbacks on taxes and fees, improved monetary policy tools, increased infrastructure spending, and a newfound commitment to small and medium enterprises.
This Chinese stimulus package has been a windfall for global markets. Stocks have been the primary beneficiaries of this newfound investor confidence. Indices in both developed and emerging economies have seen a considerable uplift, riding on the wings of this monetary infusion. In particular, shares linked to the Chinese economy – resource-based sectors such as mining, energy, and industrial goods – have seen remarkable improvement.
Meanwhile, commodities have also embraced the positive spin resulting from China’s stimulus. Industrial metals, including copper and aluminum, have propelled forward on the possibility of increased infrastructure spending. It’s important to note here that China is the world’s largest consumer of many industrial commodities. As such, even a slight upticking in demand has the potential to send waves of excitement and expectancy through the commodities market.
One of the commodities notably impacted is crude oil. Oil prices have seen a temporary resurgence after a period of sluggish performance. China is the world’s second-largest oil consumer. Therefore, an anticipated increase in economic activity within the country bodes well for the global oil market.
However, the surge in this investment energy brings with it an air of skepticism. The memory of China’s 2015 stock market crash led by aggressive credit stimulus still lingers. Experts ask, is there enough fuel to keep this fire burning, or is it a flash in the pan?
The key factor that could dampen this renewed enthusiasm is the strength of China’s stimulus. There are valid queries about its scope and extensiveness and whether it can effectively counter the economic slowdown. The stimulus, although robust, may be not enough to overcome structural challenges – including demographic aging
