Investors were disappointed last week by the lack of figures unveiled by Chinese authorities on the highly anticipated fiscal stimulus. UBS shares its views on the market impact based on varying package sizes that could be announced.
Markets have been cooling down since a press conference by China's National Development and Reform Commission (NDRC) on October 8 did not deliver an announcement of the highly anticipated size of the upcoming fiscal package.
According to a note by UBS Global Wealth Management’s chief investment office, more patience will be required before specific figures are unveiled, which it believes will likely occur only after approval by the National People’s Congress Standing Committee in late October.
Three Scenarios
The Swiss bank shared its forecast based on three different scenarios. With a fiscal package of 1-2 trillion Chinese yuan ($140 billion), this would be in line with market expectations which could lead to a high single digit upside for Chinese equities from here onwards. A more bullish case of over 3 trillion yuan could lead to high-teen digit upside while a downside surprise of 1 trillion yuan or lower could result in some unwinding of the stimulus rally.
«Estimates of the fiscal package have risen to CNY 4-5 trillion by year-end following the [Ministry of Finance’s guidance on Saturday], higher than the market’s expectation of CNY 2 trillion,» the bank added. «More aggressive central fiscal deficit and debt could be announced for 2025 and beyond, leading to a multi-year package of CNY 10 trillion or higher.»
Market Outlook
On equities, UBS expects ongoing volatility with another market hit if Beijing’s fiscal package falls short of expectations or if policymakers stay quiet in the coming weeks. Other risk factors include the upcoming US election, global trade tariffs and potential tech controls.
And on the yuan, the bank forecasts that USDCNY will reach 7.20 by the end of the year. The sustainability of the currency’s appreciation could be tempered until markets get clarity on the specific size of fiscal stimulus with downside risks also from a Donald Trump victory.
