Chinese Stocks: A Resurgent Year in 2024

As the final trading day of 2024 came to a close, Chinese stocks registered their first annual gain since 2020, with the blue-chip CSI 300 index rising 14.7% and the Shanghai Composite Index gaining 12.8%. Hong Kong shares also ended the year higher, with the benchmark Hang Seng Index closing the year's final session up 0.1%, for an annual gain of 17.7%. This turnaround in the Chinese and Hong Kong stock markets can be attributed to various supportive measures implemented by Chinese authorities, including interest rate cuts, home purchase incentives, and funding schemes for stock buying.

Banking stocks led the onshore market gains, with an advance of 34.7%, as the four largest state banks reached multi-year highs. The chip sector surged by 53.9% as domestic investors boosted holdings in local semiconductor makers amid tightening U.S. chip restrictions. Shares related to artificial intelligence, low-altitude economy, and finance also posted brilliant performances in 2024.

The turnaround in the Chinese and Hong Kong stock markets was driven by a combination of factors, including:

1. Policy Support: Chinese authorities implemented various supportive measures, including interest rate cuts, home purchase incentives, and funding schemes for stock buying, to bolster the struggling economy and restore domestic confidence. These measures helped to stabilize the capital market and contributed to the first annual gain for Chinese stocks since 2020, as well as the end of a four-year rout for Hong Kong shares.
2. Market Sentiment: The general consensus among market participants was that the market was bottoming out, which created a positive sentiment and attracted more investors to the market, contributing to the overall gains.
3. Sector-specific Performance: The strong performance of banking stocks, the chip sector, and AI-related stocks contributed significantly to the overall market gains. The banking sector's advance of 34.7% and the chip sector's surge of 53.9% were particularly notable, as they reflected the strong performance of these sectors in the domestic market.

In conclusion, the turnaround in the Chinese and Hong Kong stock markets in 2024 was driven by a combination of policy support, market sentiment, and sector-specific performance. The implementation of supportive measures by Chinese authorities, the positive market sentiment, and the strong performance of key sectors contributed to the first annual gain for Chinese stocks since 2020 and the end of a four-year rout for Hong Kong shares. As we look ahead to 2025, investors should continue to monitor the performance of these markets and consider the potential impact of ongoing policy support and market dynamics on their investment decisions.