China’s Two Sessions Report Boosts Investor Confidence, as Stocks Upgraded to ‘Overweight’
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A bull statue along the Bund in Shanghai, China, on Monday, March 3, 2025. Photo: Bloomberg
China’s latest Government Work Report has reaffirmed investor confidence in the country’s economic outlook, prompting Citi to upgrade Chinese stocks from “neutral” to “overweight” and UBS to note an increased flow of funds into Chinese equities.
Released during the annual Two Sessions congress meetings, the report outlined economic and policy targets that met market expectations, with a strong emphasis on boosting consumption. Investors welcomed the focus, seeing it as an important facet of economic recovery.
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- China's Government Work Report boosts investor confidence, leading Citi to upgrade Chinese stocks and UBS to note increased funds flow into Chinese equities, while setting a 2025 GDP growth target of 5%.
- The report prioritizes consumption, local government autonomy, and economic recovery, with special bonds and policies to stimulate spending.
- Strategic shifts include emphasizing domestic demand and tech innovation, while shifting investments into Chinese equities from other emerging markets, with significant stock performance improvements reflected in the Hang Seng Index.
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Who’s Who
- Citi
- Citi upgraded Chinese stocks from “neutral” to “overweight,” citing China's renewed economic momentum and focus on domestic demand and technological innovation. They highlighted DeepSeek’s AI breakthrough as evidence of cutting-edge Chinese tech. Meanwhile, Citi downgraded U.S. equities from “overweight” to “neutral,” suggesting a pause in the era of “U.S. exceptionalism.”
- UBS
- UBS noted an increased flow of funds into Chinese equities following China's Government Work Report. UBS highlighted the government's realistic targets to stimulate spending, including 300 billion yuan in special bonds for upgrading consumer goods. They also anticipate further policies in pensions and social welfare to boost consumer confidence. UBS data indicates a shift in emerging market investments, with funds moving from Indian and South Korean stocks to Chinese equities.
- Citic Securities
- Zheng Chen, a policy analyst at Citic Securities, noted that China's Government Work Report aligned with market expectations but also introduced key highlights such as prioritizing consumption and granting local governments more autonomy. He mentioned that consumption has now become a central focus, with new policies like childcare subsidies indicating Beijing's growth commitment. Zheng also highlighted early signs of a real estate recovery, which could help boost consumer confidence.
- DeepSeek
- DeepSeek is mentioned as a breakthrough in AI technology, highlighting China's capability in technological innovation despite facing export controls. It serves as evidence that Chinese technology is at the cutting edge, according to Citi's strategists.
- Janus Henderson Investors
- Janus Henderson Investors' Greater China Equities head, Victoria Mio, noted 2025 as pivotal due to policy shifts, highlighting the government's decision to increase its fiscal deficit ratio to 4%. This rise, the highest since China's reform era began in 1978, allows for more borrowing to stimulate the economy, with expanded special bond issuance and relaxed local government debt repayment restrictions.
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What Happened When
- Mid-2021：
- Beginning of a prolonged downturn in new home prices in major Chinese cities.
- After Mid-2021：
- Chinese real estate market experiences a prolonged downturn.
- January 2025：
- 24 out of 70 major Chinese cities reported month-on-month increases in new home prices.
- Lunar New Year 2025：
- Hong Kong's Hang Seng Index surged, briefly crossing the 24,000 mark.
- February 2025：
- South Korean investors net purchased $189 million in Hong Kong stocks.
- February to March 2025：
- South Korean investors continued the biggest two-month buying streak since early 2021 in Hong Kong stocks.
- By March 12, 2025：
- Hang Seng Index stood at 23,488 points, down 1.23% on the day.
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