In a week where broad shifts in economics went, Chinese stocks just closed their best performance since the global financial crisis of 2008. The country's capital markets received a major injection after Beijing unveiled an ambitious stimulus package. With a gigantic warchest of $114 billion, China's leadership goes all out to stabilize the economy and revive market confidence as global pressures and domestic challenges keep mounting.

China's CSI 300 index of Shanghai and Shenzhen-listed companies ended up 15.7% over the past week, its best showing since November 2008, when China adopted bold stimulus measures to respond to economic mayhem. But the latest rally does not seem to be limited to China alone; European stocks and industrial metals are also enjoying the ride as hopes for China's renewed commitment to hitting its growth target of 5% spread.

Beijing game plan: $114 billion capital injection
Indeed, at its core a dazzling market bounce is Beijing's promise to underpin capital markets with an Rmb800bn ($114bn) lending facility. That means firms can use the cash to repurchase shares on their own balance sheets; then credit issued to the non-banking financial institutions--insurance companies, in other words--can go on to be invested in local equities.

The stimulus move was first announced by the PBoC on Tuesday, while the CSI 300 index increased by 4.5% by the end of Friday. The Hang Seng index of Hong Kong also jumped by 3.6% on Friday, closing with a remarkable 13% rise for the week - the biggest weekly gain since the Asian financial crisis in 1998.


Can Global Factors Support China's Rally?
Many analysts agree that we’re witnessing a pivotal moment for China’s economy. Nicholas Yeo, head of China equities at Abrdn, notes that this surge comes not only from Beijing’s internal policy but also thanks to global factors, such as the U.S. Federal Reserve’s recent interest rate cut. Yeo sees this as a significant tailwind, one that could bolster consumption and further support China's growth, especially given its status as the world’s largest exporter.
It echoed in European markets where hopes of increased consumption from the Chinese people helped push the Stoxx 600 to fresh heights. Luxury groups particularly stand much to gain from any pickup in Chinese consumer spending. European investors are taking notices.

The Rally: What's Behind the Frenzy in Trading?
China's trading floors are buzzing. Citigroup said yesterday that its Hong Kong and mainland Chinese equities have seen record flows from clients over the past three days and that it has been described as the most active trading period for their equities sales and trading team in Asia.
With it has come a few technical teething pains, however. Shanghai Stock Exchange issued a notice Friday concerning slow transaction speeds due to the sheer volume of trades, but many observers of the markets think that despite these growing pains, there's still room for the rally to run. "This is the first time the government actively encourages leveraged investment in the stock market," Winnie Wu, an equity strategist at Bank of America, said.

"This is not the same old policy," she said, noting that the rally induced by liquidity may last some time.


Commodities Take A Tumble: Copper Climbs To Record Highs China's latest round of stimuli is not only agitating the world of stock markets; it is also fueling rampant price hikes for commodities. Among the industrial metals, big consumers of it have been riding the tide of stimulus measures. For instance, copper increased by more than 5 percent this week-it broke the $10,000-per-tonne barrier and touched its three-month high.

Then there is iron ore, another iron staple in steelmaking, that has also begun rallying after months of falling prices. Colin Hamilton, a commodities strategist at BMO, declared it a "pretty clear reflation trade," though he was not sure if this was enough to rebirth consumer sentiment wholesale.

What's in Store?
David Chao, a global market strategist at Invesco, is optimistic that the rally in Chinese stocks can be sustained. He sees similarities between the current market upswing and the 2014-2015 surge, when Shanghai’s index rocketed up by 150% before crashing back down. He still argues, though, that a downtrending U.S. dollar, partly driven by interest rate cuts at the Fed, will be the catalyst for rotation out of expensive global tech stocks into cheaper emerging market assets, including those in China.

Where stimulus has been a new lease of life for the markets in China, the question remains: will it give the momentum needed to overcome and prosper in the long run?

Time only will answer this question, but it seems that China's stock markets are riding the wave of optimism and capital infusion for now. And with global factors on its side and domestic policies conducive to investment, it's only in the next months that one will know if this is to be a bout of short-term growth or merely the beginning of a sustainable growth process. Investors are watching the situation from within China and outside very closely.