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Beyond the Sugar Rush: Strategic Stimulus for Chinese Stocks

By Advisor Perspectives
Financial Services

Whenever the Chinese economy slows and its stocks take a serious hit, investors have come to expect the government to unleash large-scale fiscal and monetary stimulus. Another heaping spoonful of sugar may do more harm than good this time around, however. It’s time for the ailing market to take some medicine.

The MSCI China A Index has tumbled by more than 26% through November 23 on concerns about a weakening domestic economy and the escalating trade war with the US. Many investors who were attracted to the opening of the Chinese domestic market earlier this year are now watching for signs of a bottom.

This is the point at which the government would normally administer a generous shot of domestic stimulus, as it did in 2008 and 2015. If the government pumped enough money into the economy, it could help offset the pain from higher tariffs, buoy the domestic economy and lift stocks out of the doldrums. But stimulus also has its dangers, particularly when it’s used as a tool to manage markets.

Read more at Advisor Perspectives.

Photo: Thomas Fischler

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