While UK investors have been fretting over the hike in household energy prices on one hand and commentary coming out of the Jackson Hole meeting of central bank governors on the other, the authorities in China have been quietly helping support global shares by easing monetary and fiscal policy.

Without any fanfare, the governor of the People’s Bank of China has cut key lending rates, announced special loans for struggling property developers and ‘encouraged’ state-owned lenders to extend more credit.

In total, China announced 19 new policies last week intended to help support the economy including more than 1 trillion yuan ($146 billion) in new funding for investment and consumption.

The government is also helping state-run power generation companies to sell 200 billion yuan ($29 billion) of special debt in order to make sure the lights stay on this winter.

These moves come as global activity shows signs of slowing and China’s economy itself limps along due to Covid-related shutdowns which have affected industrial production and more recently retail sales.

Dale Nicholls, manager of the Fidelity Special Situations Fund (FCSS), believes this easing of monetary and fiscal policy will set the stage for a positive second half of the year for the Chinese stock market.

‘It has been a tumultuous year for China’s markets with economic growth weighed down by the slowdown in the property sector and repeated lockdowns as a result of the country’s zero-Covid policy’, says Nicholls.

However, due to its latest policy action there is now ‘a huge divergence’ between China and the rest of the world which Nichols believes is supportive for local equities.

Also, the heavy-handed regulation of technology companies seems to be easing which suggests the government has decided to become more accommodative given the sector is a key engine of growth.

Nicholls expects earnings forecasts for Chinese firms to improve, unlike elsewhere in the world, as companies are able to push through price increases to offset their rising input costs.

In terms of valuation, he also believes the Chinese market looks cheap relative to other markets and its own history.

‘While the discount versus the US, for example, is not as compelling as it once was, when combined with the positive earnings momentum story we believe this stacks up favourably for China’s markets’, he says.

One key theme he is following is consolidation: ‘Many industries in China remain very fragmented compared to structures we see in the West, but the process of consolidation is clearly underway and it may have accelerated with the disruption from the pandemic.’

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