China's Market Rebound: Is The NPC Meeting A Turning Point For Investors?

China's annual National People's Congress (NPC) kicked off on March 5 and is set to run until March 11. According to Adam Turnquist, chief technical strategist at LPL Financial, while the NPC may be a rubber stamp for party policies, investors are closely monitoring its developments.

The market reaction suggests renewed optimism, with Chinese equities rallying and fixed income markets showing signs of life. The iShares China Large-Cap ETF FXI is up 5.48% over the past five days. The KraneShares CSI China Internet ETF KWEB is up 9.88% and the iShares MSCI China ETF MCHI has gained 5.90% over the same period.

But is this the real turning point for China's economy – or just another sugar high?

Growth Target: Can China Hit 5%?

Premier Li Qiang reaffirmed China's 2025 growth target at 5%, marking the third consecutive year of this goal. Turnquist notes that while this target was expected, economists remain skeptical, forecasting closer to 4.5% growth. Economists, however, are skeptical, pegging actual growth closer to 4.5%.

The government's strategy? A mix of fiscal stimulus and accommodative monetary policy. For investors, this means China-sensitive ETFs such as MWEB, FXI and MCHI could see continued momentum if policymakers deliver on pro-growth measures.

Fiscal Deficit Jumps – More Stimulus Incoming?

Beijing raised its budget deficit to 4% of GDP, the highest since 1994, to spur domestic demand. Turnquist highlights that this shift signals a commitment to boosting consumption and infrastructure spending. This includes boosting infrastructure and real estate spending, doubling funding for consumer trade-in subsidies and ramping up local government support.

The stimulus push could bode well for infrastructure-heavy ETFs like Global X MSCI China Financials ETF CHIX and KraneShares China Infrastructure ETF KFVG.

Domestic Growth Takes Center Stage

China is moving away from its export-heavy playbook, prioritizing domestic consumption. The government is also warming up to tech firms, with a new national venture capital fund aimed at reviving the sector.

That's bullish for consumer and tech-heavy plays such as Invesco Golden Dragon China ETF PGJ and KraneShares MSCI All China Health Care ETF KURE.

Markets Are Buying The News

Chinese stocks welcomed the NPC's stance, with the MSCI China Index jumping 2.8% and now up 16.1% year-to-date. Turnquist points out that the market reaction suggests improving investor confidence, particularly if technical levels hold. The rally is broadening, with over two-thirds of index stocks trading above their 200-day moving average.

A close above 77 could signal a major breakout, making this a pivotal moment for ETFs like SPDR S&P China ETF GXC.

Fixed Income Markets Join The Party

After months of skepticism, China's bond market is starting to price in better growth prospects. Turnquist observes that rising yields and a steepening yield curve indicate that fixed income investors are beginning to buy into the recovery narrative. Sovereign 10-year yields have rebounded from record lows, and the yield curve is steepening—a sign that bond investors are getting on board with the recovery narrative.

China's latest policy moves are sending strong signals to investors: more stimulus, a pivot to domestic growth and a friendlier environment for tech and infrastructure.

While skepticism remains, market momentum suggests traders are willing to give China the benefit of the doubt—for now. Keep an eye on FXI, MCHI, KWEB, CHIX, KFVG, PGJ, and GXC to ride the potential upside.

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