World Stock Watch

China’s Market Rally Falters as Investors Seek Concrete Stimulus Actions

As China’s onshore stock market reopened after a week-long holiday, a promising surge in shares quickly lost steam. The CSI 300 Index, which had risen nearly 11% at the start of the session, ended up with a modest 5% gain. Meanwhile, Hong Kong-listed Chinese shares plummeted as much as 11%.

Investors were underwhelmed by a press briefing from China’s National Development and Reform Commission, which failed to deliver concrete stimulus measures to boost economic growth. Despite assurances of further support, officials did not provide specifics, leaving investors disappointed.

The sustainability of China’s market rally hinges on the government’s ability to translate words into actions, particularly on the fiscal front. As Aleksey Mironenko, global head of investment solutions at Leo Wealth, noted, “The key thing we are watching going forward is what policies will be announced in coming weeks… That will determine if our overweight is a tactical one or a strategic one.”

Before mainland markets reopened, many strategists and fund managers had expressed skepticism about the recent surge in Chinese shares, citing concerns that stocks were already overvalued. The Hang Seng China Enterprises Index, which tracks Chinese stocks trading in Hong Kong, had soared over 30% in the past month, making it the top-performing global equity gauge.

Turnover in Shanghai and Shenzhen reached 2.23 trillion yuan ($311 billion) on Tuesday, a significant increase from the previous record. However, the world’s second-largest equity market has a history of boom-and-bust cycles, and investors are wary of getting caught in another bubble.

To reignite confidence, China needs to implement meaningful fiscal reforms and stimulus measures. As Eva Lee, head of Greater China equities at UBS Global Wealth Management, emphasized, “We need fiscal, and then hopefully some real major economic reform… By the end of this year, if we still do not have any major measure, we probably will end at this level.”