China optimism is surging. Why some investors are cautious

cnbc.com:

BEIJING — China's latest policy signals have a bigger impact on sentiment than resolving deeper issues such as real estate, analysts said.

The Shanghai Composite rallied Thursday to close at a three-month high after state media reported Chinese President Xi Jinping led a Politburo meeting on the economy that morning.

The unexpected high-level gathering called for halting the property market decline, and strengthening fiscal and monetary policy. It provided few specifics, while affirming central bank rate cuts announced earlier in the week.

Markets should value how Beijing is recognizing the severity of the economic situation, and how its piecemeal approach so far hasn't worked, Ting Lu, chief China economist at Nomura, said in a report Friday.

«The 'shock and awe' strategy could be meant to jumpstart the markets and boost confidence,» Lu said, but eventually it is still necessary to introduce well thought out policies to address many of the «deep-rooted problems.»

Growth in the world's second-largest economy has slowed, dragged down by the real estate slump. Retail sales have risen by barely more than 2% in recent months, and industrial profits have barely grown for the first eight months of the year. Exports are one of the few bright spots.

Nomura's Lu said policymakers in particular need to stabilize property since it is in its fourth year of contraction. He estimated the impact of additional stimulus wouldn't exceed 3% of China's annual GDP.

«Markets should place more emphasis on the specifics of the stimulus,» Lu said. «If not designed well, a stimulus program in a haste, even if seemingly large, could have a slow and limited impact on growth.»

The People's Bank of China this week cut major interest rates, and