U.S. investors aren't used to having a long number of days off in a row, but in China, stock market investors just got back from a weeklong celebration of the country's Golden Week following its Oct. 1 National Day. With most of the rest of the world having posted solid gains during that time frame, China had some catching up to do, and the Shanghai Composite (NYSEINDEX: ^SSEC) responded favorably with a gain of almost 3%.
The rally in China was broad-based, with just a handful of stocks in the Shanghai index posting declines on the day. In the industrial sector, Aluminum Corp. of China (NYSE:ACH) and Wuhan Steel both posted 4% gains on the Chinese exchange, while insurance giant China Life moved up by 1.5%. China Petroleum & Chemical followed the rising energy sector higher by 3%, and power plant specialist Huanang Power climbed 3.5% on the day. Losing stocks were few and far between, suggesting specific factors affecting those companies rather than any general trend holding back a particular industry.
What's next for China?
Coming out of the holiday celebration, though, China still faces some big challenges. Thus far, it has made several efforts to try to get its economic growth rate back up to its target, but investors aren't convinced that the measures taken so far will be enough to get the Chinese economy back on an accelerating growth path.
One key question will be whether Chinese policymakers look to broader-based tools in order to try to stimulate economic growth. Several moves that the nation has taken have targeted specific industries that have shown particular signs of weakness. For instance, a recent decision to reduce minimum down payment requirements for first-time homebuyers from 30% to 25% helped boost shares of companies in the real estate development arena. Another move to cut taxes on the purchase of small vehicles was apparently designed with the goal of boosting prospects for domestic automakers.
Targeted policies do have the beneficial effect of allowing Chinese officials to drill down on the areas of the economy that need the most help. Yet structural issues that have an impact on the entire economy will be harder to resolve, and with other nations in the Asia-Pacific region and throughout the rest of the world taking their own steps to try to bolster their own national economies, China can't afford to fall behind in what has increasingly become a global competitive effort to find pockets of economic strength.
With markets in Japan and Hong Kong giving up ground on Thursday, China's post-holiday stock market celebration could quickly give way to continued concerns about the future direction for stocks, especially after the third quarter's plunge. Investors should watch closely for signs of more aggressive action to try to build up the economy in China as they could have a big impact throughout the region.