Finance

China’s latest policy signals have a bigger impact on sentiment than resolving deeper issues such as real estate, analysts said.
“The ‘shock and awe’ strategy could be meant to jumpstart the markets and boost confidence,” said Ting Lu, chief China economist at Nomura, but eventually it is still necessary to introduce well thought out policies to address many of the “deep-rooted problems.”
“China’s policy moves to lower interest rates have not helped improve confidence among consumers who are fearful of borrowing in the first place,” Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, said in an email.

A shareholder at a securities hall in Hangzhou, the capital of Zhejiang province in east China, on Sept. 24, 2024.
Cfoto | Future Publishing | Getty Images

BEIJING — China’s latest policy signals have a bigger impact on sentiment than resolving deeper issues such as real estate, analysts said.
The Shanghai Composite rallied Thursday to close at a three-month high after state media reported Chinese President Xi Jinping led a Politburo meeting on the economy that morning.

The unexpected high-level gathering called for halting the property market decline, and strengthening fiscal and monetary policy. It provided few specifics, while affirming central bank rate cuts announced earlier in the week.
Markets should value how Beijing is recognizing the severity of the economic situation, and how its piecemeal approach so far hasn’t worked, Ting Lu, chief China economist at Nomura, said in a report Friday.
“The ‘shock and awe’ strategy could be meant to jumpstart the markets and boost confidence,” Lu said, but eventually it is still necessary to introduce well thought out policies to address many of the “deep-rooted problems.”

Growth in the world’s second-largest economy has slowed, dragged down by the real estate slump. Retail sales have risen by barely more than 2% in recent months, and industrial profits have barely grown for the first eight months of the year. Exports are one of the few bright spots.
Nomura’s Lu said policymakers in particular need to stabilize property since it is in its fourth year of contraction. He estimated the impact of additional stimulus wouldn’t exceed 3% of China’s annual GDP.

“Markets should place more emphasis on the specifics of the stimulus,” Lu said. “If not designed well, a stimulus program in a haste, even if seemingly large, could have a slow and limited impact on growth.”
The People’s Bank of China this week cut major interest rates, and announced plans to lower rates for existing mortgage holders. The Ministry of Finance has yet to release major policies, despite reports of such plans.

Questions about scale

For some investment institutions, that’s still not enough to move the needle on their China outlook.
“China’s policy moves to lower interest rates have not helped improve confidence among consumers who are fearful of borrowing in the first place,” Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute, said in an email.
“We would be selling emerging market equities at this point,” he said, “as we have little confidence in Beijing’s willingness to extend the large stimulus that is needed.”
Christopher added that Thursday’s “announcement of coming fiscal stimulus is welcome, but it remains to be seen if China’s government is willing to take the steps necessary to reverse the psychological damage to household and private business sentiment.”
The Chinese government has cracked down on real estate developers, after-school tutoring businesses and the gaming industry in recent years. Policymakers have since eased their stance, but business and consumer confidence has yet to recover.
China’s latest interest rate cuts follow the U.S. Federal Reserve’s shift last week to easier monetary policy. U.S rate cuts theoretically give China’s central bank more room to reduce already-low domestic rates.
A survey in September of more than 1,200 companies in China by the U.S.-based China Beige Book found that corporate borrowing declined, despite historic lows in the costs to do so.
“One can certainly hope for a wealth effect from stocks and property, but stocks will be temporary and the wealth decline from property is overwhelming compared to any relief,” Shehzad Qazi, chief operating officer at the China Beige Book, a U.S.-based research firm, said in a note Thursday.
He expects retail sales could pick up slightly in the next four to six months.
Qazi also expects the latest rally in Chinese stocks to continue into the last three months of the year. But cautioned that policies announced this week for driving more capital into the stock market “are not yet operational, and some may never be.”

Sentiment change

Those caveats haven’t discouraged investors from piling into beaten-down Chinese stocks. The CSI 300 stock index climbed Friday, on pace for its best week since 2008. It could rise another 10% in the near term, Laura Wang, chief China equity strategist at Morgan Stanley, told CNBC’s “Street Signs Asia.”
The sentiment shift has spread globally.
“I thought that what the Fed did last week would lead to China easing, and I didn’t know that they were going to bring out the big guns like they did,” U.S. billionaire hedge fund founder David Tepper told CNBC’s “Squawk Box” on Thursday. “And I think there’s a whole shift.”
Tepper said he bought more Chinese stocks this week.
An important takeaway from Thursday’s high-level government meeting was the support for capital markets, in contrast to a more negative perception in China on the financial industry in recent years, said Bruce Liu, CEO of Esoterica Capital, an asset manager.
“Hopefully this meeting is going to correct this misperception,” he said. “For China to keep growing in a healthy way, [they] really need a well-functioning capital market.”
“I don’t think they sent any different messages,” Liu said. “It’s just [that] they emphasize it with detailed action plans. That made a difference.” More

David Tepper, founder and president of Appaloosa Management.
David Orrell | CNBC

Appaloosa Management’s David Tepper said investors should believe the Federal Reserve when it says it will lower interest rates because the central bank has now to keep credibility.
“You just read what these guys are saying,” Tepper said Thursday on CNBC’s “Squawk Box.” “Powell told you something. … He told you some kind of recalibration. He has to follow through somewhat. I’m not that smart. I just read what they say and do they have conviction. They usually do what they say, especially when they have this level of conviction.”

The Fed last week sliced half a percentage point off benchmark rates, starting its first easing campaign in four years with an aggressive move despite a pretty stable economy. In addition to this reduction, the central bank indicated through its “dot plot” the equivalent of 50 more basis points of cuts by the end of the year.
Fed Chairman Jerome Powell said the cut was a “recalibration” for the central bank and did not commit to similar moves at each upcoming meeting.
“Probably two or three interest rates, 25 basis point cuts, they have to do, or they lose credibility,” Tepper said. “They’re going to do something besides the 50. You know, another 25, 25, 25 seems like it’s going to have to be done.” (One basis point equals 0.01%.)
‘I don’t love the U.S. markets’
Still, Tepper said the macro setup for U.S. stocks makes him nervous as the Fed eases monetary policy in a relatively solid economy like it did in the 1990s. The supersized rate cut last week came despite most economic indicators looking fairly solid.
“It was around the ’90s in that market where the Fed cut rates into Y2K in a good economy,” he said. That turned into “bubble mania in ’99, early 2000 so I don’t love this. I’m a value guy.”

Gross domestic product has been rising steadily, and the Atlanta Fed is tracking 3% growth in the third quarter based on the resilience in consumer spending. Meanwhile, most gauges showed inflation is still well ahead of the Fed’s 2% target. However, there has been a slowdown in the labor market, which partly prompted the oversized rate reduction.
‘Sure as heck won’t be short’
The widely followed hedge fund manager said while the central bank’s move gave him hesitation, he certainly is not betting against U.S. equities because of the immediate benefits of easy policy.
“I don’t love the U.S. markets on a value standpoint, but I sure as heck won’t be short, because I would be nervous as heck about the setup with easy money everywhere, a relatively good economy,” Tepper said. “It would make me nervous, not to be somewhat long the U.S.”
Tepper, who is also the owner of National Football League’s Carolina Panthers franchise, revealed that he’s going all in on China on the back of a rate cut and a flood of support measures the government recently announced to shore up a flailing economy.
He added that he prefers Asian and European equities to U.S. stocks.

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Distance Technologies, a Helsinki-based mixed-reality startup, raised 10 million euros ($11.1 million) of funding in a round led by GV, the venture capital arm of Alphabet.
The company says its technology can turn any transparent surface into an augmented-reality display, meaning that the user can view 3D digital objects overlayed on top of the panel they’re viewing.
Distance says its system is capable of “infinite” pixel depth, allowing it to create a life-size field of view in any setting — whether behind the wheel of a car or flying an F-18 fighter jet.

Distance Technologies develops a product that it says can turn any transparent surface into an augmented-reality display.
Distance Technologies

Distance Technologies, a Finnish startup that aims to bring mixed-reality technology to any car windshield or plane cockpit, has raised 10 million euros ($11.1 million) of funding from GV, the venture capital arm of Alphabet and other investors.
Distance raised the cash injection in a seed round led by GV, with existing investors FOV Ventures and Maki.vc also stumping up more cash for the startup, the company told CNBC on Thursday.

Helsinki-headquartered Distance develops technology that it says can turn any transparent surface into an augmented-reality display, enabling the user to see 3D digital objects overlayed on top of the panel they’re viewing.
This avoids the need for any clunky hardware, like a mixed reality headset or augmented reality glasses, both of which require a user to pull an actual device over their eyes to immerse themselves in the experience.
“One of the great barriers for mixed-reality is that, as long as you need to put something on your head, it will never be effortless or elegant as a solution,” Urho Konttori, CEO and co-founder of Distance, told CNBC in an interview earlier this week. Konttori was formerly chief technology officer of Varjo, another Helsinki-based mixed-reality firm.
Distance is primarily focused on selling into the auto, aerospace and defense markets.

The way Distance works is by using tracking technology to identify where you are looking and then compute the correct light field to match the exact positions of your eyes, according to Konttori.

Distance’s solution adds a set of optics layers on top of most liquid crystal displays (LCDs), which allow its tech to beam an image onto the places where your eyes are focusing.
Using this technique, Distance can separate the light fields into your left and right eyes, while also creating an additional optical layer underneath that creates a high brightness.
Distance says its system is capable of “infinite” pixel depth, meaning it can create a life-size field of view in any setting — whether behind the wheel of a car or flying an F-18 fighter jet.
GV, which was formerly known as Google Ventures and counts the internet search giant’s holding company Alphabet as its sole limited partner, told CNBC that it was attracted to invest in Distance due to the “potential to build the next-generation of user interfaces.”
“We are particularly excited about how some of the nearer-term pathways to bring this to market in automotive and aerospace allow the potential for users to get their hands on this technology,” Roni Hiranand, principal at GV, told CNBC.
Commercializing mixed reality isn’t an easy feat. For one, mixed-reality devices are still expensive. Apple’s Vision Pro and Microsoft’s HoloLens 2 devices both start at $3,500 — and they’re not cheap to make, either. A new AR glasses concept device Meta unveiled Wednesday reportedly cost the firm $10,000 per unit to make, according to The Verge.
Meta was not immediately available for comment when contacted by CNBC.

Augmented reality heads-up displays, or HUDs, aren’t a new phenomenon in the automotive industry. Companies have been working to add AR features to cars for several years, with tech giant Huawei among the early movers to pioneer the tech in China.
A slew of other display technology firms are developing their own AR HUDs for cars, including First International Computer, Spectralics, Envisics, Futurus, CY Vision, Raythink, Denso, Bosch, Continental, and Panasonic.
According to Distance Technologies Chief Marketing Officer Jussi Mäkinen, the company’s system can cover the entire surface of any transparent surface, not just a specific corner or the bottom half of a display — a limitation that most automotive AR HUDs are facing today.
“The main difference here is that we are driven by the software,” Mäkinen told CNBC.
The company previously showcased a proof-of-concept version of its technology at the Augmented World Expo USA 2024 mixed-reality industry trade show in June.
For now, Distance has had to use simple optics and normal LCD displays to demonstrate its technology to prospective partners and investors. Going forward, Konttori said he’s getting ready to push a “very expensive” button: advancing Distance’s optics technology into what he calls the next generation early next year.
“I would say that we have been in the research cycle now,” Distance’s CEO said. “Now, we are switching into the product cycle. And the key thing to do is work with somebody who will become your customer … one or two to work very closely with, and then a finalized product specification.” More

China aims to stop the property slump, top leaders said Thursday in a readout of a high-level meeting published by state media.
While the meeting did not provide many details, it is significant for a country where policy directives are increasingly determined at the very top.
Stocks in mainland China and Hong Kong extended gains after the news to close sharply higher.

Builders step up construction in Yuexi County, Anqing city, Anhui province, China, on Sept 25, 2024.
Cfoto | Future Publishing | Getty Images

BEIJING — China aims to stop the property slump, top leaders said Thursday in a readout of a high-level meeting published by state media.
Authorities “must work to halt the real estate market decline and spur a stable recovery,” the readout said in Chinese, translated by CNBC. It also called for “responding to concerns of the masses.”

Chinese President Xi Jinping led Thursday’s meeting of the Politburo, the second-highest circle of power in the ruling Chinese Communist Party, state media said.
The readout said leaders called for strengthening fiscal and monetary policy support, and touched on a swath of issues from employment to the aging population. It did not specify the timeframe or scale of any measures.
“I take the messages from this meeting as a positive step,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in an email to CNBC. “It takes time to formulate a comprehensive fiscal package to address the economic challenges, [and] the meeting took one step in that direction.”
Stocks in mainland China and Hong Kong extended gains after the news to close sharply higher on Thursday. An index of Chinese property stocks in Hong Kong surged by nearly 12%.

Real estate once accounted for more than a quarter of China’s economy. The sector has slumped since Beijing’s crackdown in 2020 on developers’ high levels of debt. But the decline has also cut into local government revenue and household wealth.

China’s broader economic growth has slowed, raising concerns about whether it can reach the full-year GDP target of around 5% without additional stimulus. Just days after the U.S. cut interest rates, the People’s Bank of China on Tuesday announced a slew of planned interest rate cuts and real estate support. Stocks rose, but analysts cautioned the economy still needed fiscal support.
Official data shows real estate’s decline has moderated slightly in recent months. The value of new homes sold fell by 23.6% for the year through August, slightly better than the 24.3% drop year-to-date as of July.
Average home prices fell by 6.8% in August from the prior month on a seasonally adjusted basis, according to Goldman Sachs. That was a modest improvement from a 7.6% decline in July.
“Bottom-out stabilization in the housing market will be a prerequisite for households to take action and break the ‘wait-and-see’ cycle,” Yue Su, principal economist China, at the Economist Intelligence Unit, said in a note. “This suggests that the policy priority is not to boost housing prices to create a wealth effect, but to encourage households to make purchases. This real estate policy is aiming at reducing its drag on the economy.”

Thursday’s meeting called for limiting growth in housing supply, increasing loans for whitelisted projects and reducing the interest on existing mortgages. The People’s Bank of China on Tuesday said forthcoming cuts should lower the mortgage payment burden by 150 billion yuan ($21.37 billion) a year.
While Thursday’s meeting did not provide many details, it is significant for a country where policy directives are increasingly determined at the very top.
The high-level meeting reflects the setting of an “overall policy,” as there previously wasn’t a single meeting to sum up the measures, Bank of China’s chief researcher Zong Liang said in Mandarin, translated by CNBC.
He noted how the meeting follows the market’s positive response to the policy announcements earlier in the week. Zong expects Beijing to increase support, noting a shift from focus on stability to taking action.

Tempering growth expectations

The meeting readout said China would “work hard to complete” the country’s full-year economic targets.
That’s less aggressive than the Politburo meeting in July, when the readout said China would work to achieve those goals “at all costs,” according to Bruce Pang, chief economist and head of research for Greater China at JLL.
That shows policymakers are looking for middle ground between short-term growth and longer-term efforts to address structural issues, he said.

Goldman Sachs and other firms have trimmed their growth forecasts in the last few weeks.
The change in tone about the economic targets signals “the government may tolerate growth below 5%,” the EIU’s Su said. “We estimate real economic growth to be around 4.7% in 2024, before slowing down to 4.5% (a moderate upward revision to our previous forecast).”
“The Politburo meetings on economic deployment usually take place in April, July, and October,” she said.
“The fact that this meeting was held earlier, along with the emphasis on stabilizing growth, reflects policymakers’ concerns about the current economic growth trend.”
Initial analyst reactions to Thursday’s meeting readout were varied.
HSBC said “the tide has turned; be prepared for more proactive initiatives.” Capital Economics, on the other hand, said Beijing’s hint at stimulus did not make it clear whether it would include large-scale fiscal support.
S&P Global Ratings analysts said in a report earlier this year that fiscal stimulus is losing its effectiveness in China and is more of a strategy to buy time for longer-term goals.
Senior officials in the summer told reporters that the economy needed to endure necessary “pain” as it transitioned to one of higher-quality growth with a bigger high-tech industry.
— CNBC’s Sonia Heng contributed to this report. More

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