China markets surge in wild end to the quarter

A major injection of economic stimulus in China drove gains in stocks from Beijing to New York at the end of the quarter. Some investors say what happens there could be key to markets’ direction in the months ahead.

The Shanghai Composite Index surged 8% on the final day of trading Monday, its biggest daily jump since 2008. The 17% gain in the final month of the quarter was its biggest monthly climb since China’s notorious 2015 stock market bubble.

The September performance erased several months’ losses for the index. China’s ailing economy has dragged on stocks in recent years, fueling capital flight and pushing smaller investors toward safer assets.

Investors cheered Chinese officials’ promises of greater economic support. Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management, wrote that the policy shift could be a “game-changer for Chinese risk assets.” With interest rates already coming down and U.S. stock indexes trading near record highs, some think a rebound in China could fuel the next leg of the rally.

Another barrage of stimulus landed over the weekend, when the central bank directed lenders to cut interest rates for existing mortgages and two major cities lifted curbs on home buying. Yet many remain concerned the boost will prove insufficient to alleviate strains on the world’s second-largest economy. China is a global manufacturing hub and the world’s largest consumer of commodities. Problems there tend to spill elsewhere.

Here’s a look at what investors are tracking as the new quarter opens:

In the U.S., securities of Chinese e-commerce companies Alibaba, PDD’s Pinduoduo and JD.com all rose in recent days. The Invesco Golden Dragon China ETF, which includes dozens of Chinese companies listed on American exchanges, rallied 23% to notch its best weekly gain since March 2022.

Chinese e-commerce firms, which play a crucial role in the country’s economy, have been facing slower growth, fierce domestic competition and changing consumer appetites.

The gains spread beyond mainland China. The Hang Seng Index jumped 13% for its best week since 1998. In Europe, companies that have suffered from weak Chinese sales in recent months perked up. Purveyors of luxury goods, such as LVMH, Kering and Christian Dior, have all seen their stocks pop. So have German carmakers Mercedes-Benz and BMW.

China has long been an engine of the luxury-goods industry, but the weakened economy, falling real-estate prices and declining consumer confidence have prompted the country’s middle-class shoppers to rein in spending.

Investors thought the Chinese authorities had dealt casino companies with big Macau operations a good hand. Shares of Las Vegas Sands and Wynn Resorts both gained about 22% last week.

Macau, a major hub for Chinese and international gamblers, has suffered a decline in visitors and weaker revenue in recent years because of the Covid-19 pandemic.

Shares of miners that shovel iron ore, copper and other commodities into China’s huge industrial economy jumped. Rio Tinto, Freeport-McMoRan and BHP Group all advanced more than 10% last week.

And China’s currency strengthened to its strongest level in more than a year, approaching about 7 yuan against the dollar.

Write to Joe Wallace at joe.wallace@wsj.com and Vicky Ge Huang at vicky.huang@wsj.com