Good morning investors. There is something unfolding in the world’s second-largest economy.

It is big news — but unfortunately for Chinese consumers and their local property markets, not big enough.

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Beijing intervenes, but no bazooka

Global investors have waited a long time for Beijing to acknowledge “enough is enough” and save its ailing economy. 

Despite a positive reaction in the Chinese stock market, the stimulus package unveiled Tuesday resembles more of a pellet gun than a bazooka.

Here’s what the People’s Bank of China announced: 

• 800 billion yuan ($113 billion) of liquidity to support Chinese stocks 

• Plans for a new stock stabilization fund

• Slashed reserve requirements for banks, short-term interest rates and existing mortgage rates

• Eased rules for second-home purchases and government purchases of unsold homes

The strategy reflects a focus on the supply side of the economic equation, though it doesn’t exactly address weak consumer demand and shaky confidence, both of which have been in the gutter for years. 

China is coming off its worst quarter of growth in five quarters. Much of that lag can be chalked up to a deterioration in its property sector and a painful deflationary spiral, which Opening Bell Daily covered last week.

Meanwhile, Beijing’s decision to so explicitly wade into the stock market looks like a bid to attract foreign capital back to China. 

Still, if we go by the initial market response, the move appears to be working.

The onshore CSI 300 Index closed 4.3 percent higher on the day and the offshore Hang Seng Index rose 4 percent — each of their best single-day gains in over two years. 

Whether investors stick around long-term is another question. Past performance does not guarantee future results, but the chart below comparing the S&P 500 to the iShares MSCI China ETF is stark.

Bank of America analysts led by Winnie Wu and Willie Chan wrote Tuesday that the policy package and market response reminded them of 2014, when rate cuts and other measures led to an epic stock rally. 

The surge ultimately proved short-lived, however, and ended with a painful bubble-burst in the second half of 2015. 

“For the current rally to sustain,” Wu and Chan said, “we would like to see more policy implementation details.” 

They shared four items that could create a lasting impact in China: 

1. Fiscal easing to alleviate local government debt and drive credit demand

2. Supply-side reform to reduce deflation

3. Policies to stabilize property prices

4. Create more jobs and increase household income

Solita Marcelli, UBS’ chief investment officer for the Americas, agreed that the news falls short of the major stimulus packages of past years.

In her words:

“To break the ongoing deflation-deleveraging loop, we think monetary easing alone is insufficient and that additional fiscal support must play a bigger role. More fiscal stimulus could come in October in the form of a budget revision, in our view, especially if third-quarter GDP remains well below the 5 percent level.”

What is your take on China’s new policy intervention? Reply directly to this email or let me know on X @philrosenn.

Elsewhere:

📊 Stocks are slipping after notching record highs. US indexes moved lower in early Wednesday trading, one day after the S&P 500 and Dow closed at all-time highs. Still, all three benchmarks are on track for a winning September, an unusual feat for what’s historically the weakest month of the year for equities.

📉US consumer confidence dropped. The Conference Board’s index slid by the most in three years, falling from 105.6 in August to 98.7 in September. Respondents raised concerns about jobs, inflation, and business conditions. Notably, in February 2020 before COVID-19 hit, the index hovered at 132. (CNBC)

👀 Warren Buffett sold more Bank of America stock. New regulatory filings show Berkshire Hathaway has trimmed its stake in the firm by another $863 million. The conglomerate now owns 10.5% of the second-largest US bank. Buffett first started cutting his stake in BofA in July. His remaining position is worth more than $32 billion. (Bloomberg)

Rapid-fire:

• A top economist in China vanished after making private WeChat comments after allegedly criticizing the government’s handling of the economy (WSJ)

• FTX’s crypto fraudster Caroline Ellison has been sentenced to two years in prison and must forfeit $11 billion (CoinDesk)

• An appellate court is weighing whether betting markets can take wagers on political outcomes like the presidential election (Barron’s)

• Nvidia CEO Jensen Huang concluded a planned sale of more than $700 million worth of company stock, new filings show (Investopedia)

• Nomura, Japan’s biggest brokerage, faces a $152,000 fine for allegedly manipulating the Japanese government bond futures market (Bloomberg)

• The US Justice Department is going after Visa in an antitrust lawsuit for allegedly blocking competition (Yahoo Finance)

Last thing:

Anthony Pompliano, the co-founder of Opening Bell Daily, just published his first book. It’s not directly about finance, but instead covers the lessons he has learned as an investor and entrepreneur — written as timeless letters to his children.

As someone who knows and collaborates with Anthony each day, I can tell you he has worked extremely hard on this for two years.

If you’re looking for your next read, I’d highly recommend How to Live an Extraordinary Life.

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