Stock market growth in China temporarily halts in anticipation of next week's Politburo gathering, aiming for a fifth consecutive weekly increase.
China's Politburo Meeting Signals Continuity and Structural Reforms
The Shanghai Composite index, on track for a fifth consecutive weekly gain, edged lower on Friday, marking a temporary pause in its recent rally. Despite the day's pullback, the index has gained 1.7% so far this week. The market was pausing ahead of a key Politburo meeting in China, set for July 2025, which is expected to emphasize structural reforms and a shift towards consumption-driven growth.
The upcoming meeting will likely signal policy continuity with targeted support rather than broad stimulus, balancing the need to address overcapacity and economic headwinds without excessive easing. Beijing is also expected to provide clues on the forthcoming 15th five-year plan (2026-2030), likely prioritizing technological self-reliance and high-end manufacturing to enhance economic resilience amid prolonged geopolitical rivalry.
Local government reforms to prioritize debt sustainability and economic quality over mere GDP growth, a cautious approach to the real estate sector, and promotion of innovation and total factor productivity through institutional reforms are some of the key focuses of the meeting. Continued emphasis on political discipline and unity within the Party amid economic and internal challenges is also anticipated.
Economists anticipate that this policy focus generates mixed implications for China’s stock market. The absence of aggressive stimulus, paired with ongoing reforms and real estate caution, may pressure sectors linked to construction and debt-sensitive industries in the short term. However, the pivot toward innovation, productivity, and consumption could favor technology, consumer goods, and quality growth-oriented companies in a longer-term perspective. Investors should expect short-term volatility but structural investing opportunities in areas aligned with the new strategic direction.
Analysts at CLSA believe that institutional investors' overall risk appetite has improved significantly this month, which could contribute to a potential rebound in the market after the Politburo meeting. The Hang Seng Tech Index led declines, losing 1.7% on the day, while the China blue-chip CSI300 index lost 0.5%. Hong Kong's benchmark Hang Seng Index weakened 1.1% to 25,383.07.
Incremental signs of improving U.S.-China trade relations have also contributed to the sentiment. Keiko Kondo, Schroders' head of multi-assets for Asia, remains neutral on China equities, while some analysts remain unconvinced about a structural bull run and see more sector-specific opportunities.
Beijing's latest efforts to curb excessive competition and overcapacity have lifted sentiment, and the market remains on track for a fifth straight weekly gain. Market attention would be squarely on the Politburo meeting next week, which is expected to reinforce disciplined, reform-oriented policy making, which could dampen immediate market enthusiasm but strengthen sustainable growth prospects in China's economy and stock market over time.
[1] Reuters
[2] South China Morning Post
[3] Bloomberg
[4] Financial Times
- The Shanghai Composite index's recent rally might face a temporary pause before the upcoming Politburo meeting, but the focus on structural reforms and consumption-driven growth in China's economy could positively impact growth-oriented companies in the stock market over time.
- A cautious approach towards the real estate sector and a pivot towards technological self-reliance and high-end manufacturing, as anticipated in the Politburo meeting, could lead to growth opportunities in technology, consumer goods, and quality growth-oriented stocks in a long-term perspective.
- Although the absence of aggressive stimulus and ongoing reforms might pressure construction and debt-sensitive industries in the short term, the upcoming Politburo meeting signals policy continuity and increased risk appetite among institutional investors, which could potentially contribute to a rebound in the stock market.
