Yahoo Finance China's $114 billion stimulus package immediately boosted its stock market. But can it last?
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In today's big story, Wall Street's big bet on China might be fool's gold.
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The big story
Here we go again
Just when Wall Street thought it was out, China is pulling it back in.
US financial firms' interest in China was on its last legs, but a new stimulus package has some investors excited again.
The immediate impact of China's $114 billion package, which includes cutting interest rates and reducing the amount of money banks need to keep in reserve, has been big. But Business Insider's Linette Lopez isn't sold on this being the start of a turnaround.
The fix is more of a bandage than anything else, as it doesn't address key economic issues plaguing the country.
Reducing bank reserve requirements means more loans can be issued, but accessing capital isn't the problem, Linette writes. China's dumpster fire of a property market is what has consumers stuck in place.
The majority of Chinese household wealth is invested in property (70%), which is a problem considering housing prices have fallen as much as 30% in Tier 1 cities.
In short, Chinese consumers' money is tied to assets dropping like lead balloons, which doesn't make them keen to spend money.
If you're still buying into the China hype, consider this: The stimulus package isn't that big.
The government spent more than $1 trillion in the wake of the finance crisis and $157 billion in 2012 on infrastructure projects.
As Linette puts it, "The problem does not match the price tag here."
Still, that's not stopping some Wall Streeters from diving back into China.
Hedge fund billionaire David Tepper is extremely bullish on the investing situation in China after the most recent stimulus package, describing it as a buy "everything" moment.
He's not alone. Traders, investors, and speculators have sent China's stock market to its best month in nearly a decade, signaling that the market players think that Beijing's moves are a "bazooka."
Most analysts agree that more will need to be done to keep the good times rolling. (Tepper, for what it's worth, acknowledged as much, noting that People's Bank of China governor Pan Gongsheng "promised to do more and more and more."
What that looks like remains to be seen. The key gap in the current policy remains fiscal support for China's discouraged consumers, writes BI's Filip De Mott
In the meantime, Wall Street's on-again-off-again relationship with China will prevail. As frustrating as the country can be to investors, too much opportunity exists for financiers to turn their back on it forever.
So even if this latest crop of China believers gets burned, there will likely be another group willing to follow in their footsteps. After all, maybe this time will be different.
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