Investors are eagerly awaiting signals from China's annual political assemblies next week to determine whether the market rally driven by artificial intelligence (AI) will continue to gain momentum, with expectations that policymakers will offer additional support to address challenges such as declining consumer spending, a sluggish property market, and rising US tariff threats.
Over 3,000 delegates from all parts of the country will convene in Beijing on Wednesday for the National People's Congress to discuss the government's work report, which usually outlines goals for economic expansion, state expenditures, and inflation control, as well as other development objectives.
The additional 25 per cent will be levied on Chinese imports on top of the existing 10 per cent rate.
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The NPC meeting occurs at a time when Chinese stocks have regained favor with global investors seeking to redistribute assets amid turbulence in US markets. Trump's tariff threat dampened the momentum, causing the Hang Seng Index to drop by more than 3% on Friday.
The parliamentary gathering will largely follow the supportive tone set by top officials in late 2024, who promised looser monetary and more proactive fiscal policies for this year.
The fiscal deficit ratio, a key indicator of how the government can effectively use its support to stimulate growth, is expected to rise to 4 percent of the country's gross domestic product (GDP) this year, up from 3 percent previously. Concurrently, the goal for GDP growth may remain unchanged at approximately 5 percent, according to Goldman Sachs and UBS Group's predictions.
We'll see how they actually put into practice the policies that were announced over the past few months, and how large of a deficit the government is willing to accept this year," said Alex Au, founder and chief investment officer at Alphalex Capital Management in Hong Kong. "If it exceeds 4 per cent, that should be viewed as a positive. The market is hoping the government takes on a larger deficit and funds the market.
Chinese Premier Li Qiang will present the government work report at the opening session of the National People's Congress before delegates split into regional groups to discuss targets and proposals for growth.
A day before the Chinese People's Political Consultative Conference, an advisory body to Chinese policymakers, begins, the two-week gatherings, also known as the two sessions, typically take place.
Alibaba Group Holding co-founder Jack Ma met with other business leaders. The meeting was also seen as a sign that the years-long crackdown on the tech industry has ended.
A resurgence of consumer confidence will also be in focus, as increasing consumption was emphasized as a top priority at a high-level economic meeting in December.
Policymakers may reveal more information about consumption stimulus measures during the upcoming legislative sessions as they have set consumption as their top priority for the year, according to a recent report from Goldman Sachs analysts led by Andrew Tilton and Hui Shan.
The recent surge in the DeepSeek phenomenon has led to a re-examination of Alibaba and other Chinese tech stocks listed in Hong Kong, and propelled the Hang Seng Tech index into a bull market. However, traders may require further proof of policy backing to convince them that this rally will be enduring.
For now, traditional sectors like banking and manufacturing, which account for a large share of China's $10 trillion onshore market, have been relatively sluggish, underperforming technology stocks. The downward pressure on prices and the decline in the property market are the two main factors contributing to the pessimistic mood.
Onshore investors can consider buying consumer companies in the two trading sessions, as advised by Dongxing Securities.
Consumer stocks traded at low valuations due to economic pessimism, yet even a mildly positive news headline could trigger significant price increases, according to Lin Yang, an analyst at a Shanghai brokerage firm.
A sub-index of consumer-staples stocks on the CSI 300 Index has decreased by 2.4 percent this year, while a sub-index of consumer-discretionary stocks has increased by 0.8 percent. This compares to a 6.2 percent gain in the tech sub-index and a 25 percent rise in the Hang Seng Tech Index.
"We anticipate that the policy stance on high-tech manufacturing, the property sector, and private enterprises will continue to be supportive following recent advancements in DeepSeek/AI and President Xi's meeting with business leaders," the Goldman analysts noted.
Reporting assistance provided by Leopold Chen
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