The Fortescue Ltd (ASX: FMG) share price has had an excellent September so far, climbing by around 10% in the month, as the chart below shows.
That compares to a 1.5% rise for the S&P/ASX 200 Index (ASX: XJO), so Fortescue shares have outperformed the index by more than 8%. And there is still today's trading to go to see the month out.
Of course, the longer-term trends don't look as positive (yet) for the company's shareholders. Since the start of 2024, the Fortescue share price is down by more than 31% while the ASX 200 has lifted more than 7%.
This month's big rebound of Fortescue shares largely comes down to China.
China stimulates its economy
The Chinese economy has not been growing as strongly as it has in the past decade. Of course, it's hard to keep the same growth rate in percentage terms as an economy (or company) grows bigger and bigger.
However, China wants its economy to expand by 5% in 2024, which has become an increasingly difficult target to reach as the construction and real estate sectors struggle.
Various media, including Reuters, reported last week that China was launching its biggest economic stimulus since the COVID-19 pandemic.
People's Bank of China Governor Pan Gongsheng said the central bank would reduce the amount of cash that banks must hold in reserve, known as the reserve requirement ratios (RRR). This reduction of 50 basis points (0.50%) will unlock approximately US$142 billion for new lending.
The governor added that, depending on market liquidity later in the year, there could be another 25 to 50 basis points (0.25% to 0.5%) reduction.
It was also reported that the PBOC will cut the seven-day reverse repo rate by 0.2 percentage points to 1.5%.
China's central bank will guide commercial banks to reduce interest rates on existing mortgages by 50 basis points (0.50%) on average so that households can receive a financial boost.
The country is also lowering the minimum downpayment to 15% for second home buyers across the country, down from 25%.
There will also be other measures, including funds being encouraged to promote mergers, acquisitions and reorganisations.
Iron boost for Fortescue shares
It's still early days, and there is little time yet for these financial measures to flow through the Chinese economy.
It hasn't sparked a significant increase in the iron ore price yet, but investors may be hopeful that the stimulus will lead to a rebound in iron ore demand in the country. This would, therefore, help Fortescue's profit and dividend, justifying the rise in the Fortescue share price.
Fortescue's profit rebound could largely depend on how far iron ore demand and price recover in China.
Trading Economics forecasts that the iron ore price could climb to US$97 relatively soon, which could excite the market further about the ASX iron ore share.
