It could be a rollercoaster of a day on the markets as events in China and the US dominate the agenda.
After a big sell-off in Chinese stocks on Monday and Tuesday, Beijing has stepped in with pledges of support to try and stabilise markets. This has resulted in a big rebound in the Hong Kong Hang Seng index, up 9.1%, and a massive rally in some of the names worst affected in the sell-off including Tencent (+23%) and Alibaba (+26%).
Chinese stocks had been hit by fears that the economy would suffer from renewed lockdowns and disruption to the electronics manufacturing hub of Shenzhen, further deterioration in the real estate sector amid bad debts, and the country potentially providing support to Russia in its war on Ukraine. These factors added to existing pressures around tighter regulatory interference on various sectors and whether Chinese companies should still be allowed to list their shares on overseas markets.
“Now Beijing has vowed to introduce policies that benefit markets although the big unknown is still whether the country will side with Russia,” said Russ Mould, investment director at AJ Bell.
“Investors around the world have increasing put money into Chinese stocks as this market is where some of the best earnings growth stories have been found. Last year’s regulatory clamp-down on internet firms and other sectors soured the appeal of the region to investors but earlier this year sentiment started to improve again.
“The speed at which Beijing has responded to this week’s sell-off would suggest it doesn’t want to let things drift out of control. Its key goal is common prosperity and stock markets matter because a lot of Chinese retail investors have money in equities, so their wealth is at stake if shares are plummeting in value.
“If that hasn’t provided enough drama for the day, markets are also braced for the US interest rate decision later today. The Federal Reserve is widely expected to put up rate by a quarter of a percentage point, but anything more could knock the market for six.
“The central bank has a fine balancing act of taking action to curb inflation while not being too aggressive and tripping up the economy.
“It is coming from a low base which means consumers and businesses should be able to easily stomach a small increase – the key question is how many more rate rises we’ll get and how quickly they will come. Fast and furious could stall the US’s growth engine.
“In the UK, the FTSE 100 jumped 1.4%, led by companies exposed to Asia including Scottish Mortgage Investment Trust, Burberry and Prudential. Coming up the rear were mining stocks including a 3% rise in Glencore and Rio Tinto amid relief that efforts by the Asian superpower to bring market and economic stabilisation should also equate to sustained demand for commodities.”