Chinese Stimulus Measures Boost Asian Markets While Raising Inflation Questions

Asian equity markets rallied strongly into the weekend following fresh signals from Beijing that additional fiscal and monetary stimulus is forthcoming to support China’s faltering economic recovery.

The Politburo meeting earlier in the week pledged a “more proactive” fiscal policy and “moderately loose” monetary stance for 2026—the first such easing language in over a decade. Details are expected in March’s National People’s Congress, but analysts anticipate increased infrastructure spending, consumer subsidies, and targeted rate cuts.

The announcements provided immediate relief to sentiment battered by property sector woes and deflationary pressures. Hong Kong’s Hang Seng Index surged more than 3% on Friday, while mainland Chinese benchmarks rose over 2%. Property developers led gains, with Country Garden and Longfor jumping double digits.

“The shift in tone is significant,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis. “Beijing is acknowledging that demand-side support is needed alongside supply-side reforms.”

Commodity markets responded positively, with iron ore and copper prices rebounding on expectations of construction activity pickup. Australian resource stocks benefited accordingly.

Global investors have been underweight China for much of 2025 amid geopolitical tensions and regulatory crackdowns. The stimulus pivot could trigger reallocation flows, particularly into undervalued state-owned enterprises and green technology names.

Currency markets saw modest yuan appreciation, though the People’s Bank of China continues to manage volatility carefully to support exports.

Questions remain about the scale and effectiveness of measures. Local government debt constraints limit traditional infrastructure splurges, while household balance sheet repair after the property downturn will take time.

Inflation implications are also being debated. With producer prices in deflation for over two years, stimulus could help reanchor expectations closer to the 3% target. However, excessive easing risks asset bubbles or capital outflows if not calibrated properly.

For global markets, a stabilizing China would be broadly positive—removing a major drag on world growth and commodity demand. Emerging market assets more broadly have already begun to outperform.

As details emerge in coming months, investor focus will shift to implementation and whether private sector confidence returns. For now, the policy pivot has bought valuable breathing room.