The great fall of China blew the global markets last month, sending the major indices bouncing all over.

While the Shanghai Composite index plunged 15.3% over a one–month period from Aug 7 to Sep 8, the U.S. market was also in the red with the S&P 500 (SPX), Dow Jones Industrial Average (DJI) and NASDAQ Composite (COMP) down 5.2%, 5.1% and 4.6%, respectively.  

While concerns over the derailed Chinese economy and Fed rate hike speculations kept even the most stoic investor on the sidelines, yesterday’s fiscal policy announcement by the Chinese government injected some optimism. All major Asian and domestic indices gained traction and rallied on the Chinese stimulus.

The Chinese stock market itself gained 2.9% and closed at 3170.45 on Sep 8. Back home, the S&P 500 climbed 2.5%, Dow Jones Industrial Average was up 2.4% and NASDAQ saw a 2.7% ascent driven by the stimulus.

Yesterday, the Shanghai Index has ended trading in green, rising 2.3% on hopes that the government measures will revive the country’s dwindling economy

The Stimulus

The Ministry of Finance announced plans to solidify its fiscal policy, accelerate tax reforms and augment infrastructure expenditure, in an attempt to support the economy’s revival. As part of these measures, the government intends to speed up construction projects, encourage public-private partnerships to sponsor private financing and standardize local debt management.

After enduring a major fall in imports in August, Chinese policy makers are giving their best shot to turn around the economy. Before introducing these fiscal measures, the Chinese central bank tried out several monetary policies to stem the market mayhem. We believe that a blend of these monetary and fiscal policies will support a recovery.

What Next?

The temporary quiver shouldn’t discourage investors as the market is most likely to regain the vigor. In fact, the stock market cycle in itself gives us a good reason to invest in momentum stocks. Hence, investors should rather play it smart and play it right and make big bucks.