Talk of a new stimulus package in China produced a 4% rally in the Shanghai Composite in the space of two days earlier this month. The turnaround was triggered by the government’s announcement that it had approved a large number of investment projects. But hopes that these projects might provide a boost to economic growth have faded. A closer look showed that this was not “new” spending – most of the projects had long been expected to happen anyway. Furthermore, the project approvals had actually been granted over a period of several months, and spending on them will be spread over several years. Equities have now given up half of their earlier gains.
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