On October 4th, the Hong Kong Hang Seng Index saw a notable uptick, closing at 22,736.87 points — an increase of 623.36 points or 2.82%. Trading volume for the day reached an impressive 261.526 billion Hong Kong dollars. This rally comes on the heels of China’s announcement of a substantial stimulus plan, which has positively impacted both the Chinese and Hong Kong markets. However, Nomura, a prominent international investment bank, has issued a warning to investors about the potential for a market reversal. They emphasize that the current economic landscape is considerably weaker than during the last significant rally in 2016.

In a recent report to clients, Lu Ting, Chief Economist at Nomura, highlighted concerns that, under the most pessimistic scenarios, a stock market surge could culminate in a collapse reminiscent of the 2015 crisis. He noted that the likelihood of this event occurring is far greater than that of more optimistic forecasts.

Following various measures aimed at rejuvenating China’s ailing economy, the Shanghai Composite Index surged by 8.06% on September 30, closing at 3,336.5 points. This represented the largest single-day increase since 2008 and indicated the possible onset of a bull market. The index has since been closed for the National Day holiday.

As of October 4, Hong Kong stocks have rebounded, reaching levels not seen in nearly two years, leading many global fund managers to take a bullish stance on “Chinese assets.” Nonetheless, Nomura remains cautious, suggesting that while the current rally may be appealing, a more grounded evaluation is necessary.

The bank pointed out that the Chinese economy’s fragility arises from multiple issues, including a nearly four-year real estate crisis, increasing local government debt, and rising geopolitical tensions. Should the current upward trend fade, investors might face more severe scenarios; Beijing may resort to aggressive monetary policies, risking capital flight and exerting additional downward pressure on the Chinese yuan.

The Shanghai Composite Index experienced a significant rise from a low of 2,217 points in September 2014 to a peak of 5,178 points on June 12, 2015. However, this boom was followed by a staggering 40% drop in about two months. Analysts suggest that this time, Beijing possesses more resources to stabilize the market, including new liquidity tools such as swaps and refinancing mechanisms that have yet to be implemented.

Analysts quoted by Radio France Internationale argue that a repeat of the 2015 stock market crash is a scenario that the Chinese leadership cannot afford to face.

Additionally, Galaxy Securities has warned that the substantial wealth effect stemming from recent short-term gains in the Chinese stock market raises the risk of a possible pullback. They advocate for careful expectation management to curb excessive speculation that could undermine future opportunities. As the Chinese stock market evolves into a primary avenue for individual asset allocation and corporate financing, structural challenges may emerge, necessitating proactive strategies from both the government and regulatory bodies.