China’s Onshore Stocks Plummet as Stimulus Expectations Fade
Chinese stocks suffered their steepest decline in over four years, wiping out gains made earlier in the week. The CSI 300 Index plummeted 7.1%, its largest one-day drop since February 2020, as investors grew increasingly frustrated with the pace of Beijing’s stimulus measures. The Hang Seng China Enterprises Index, which tracks Chinese stocks listed in Hong Kong, fell 1.5%, erasing all its gains made during the Golden Week holidays.
The market’s enthusiasm, which had been fueled by a series of policy announcements designed to support the economy, began to wane as traders realized that no major initiatives were announced at a key policy meeting on Tuesday. Strategists and fund managers are now calling for Beijing to back up its spending pledges with concrete actions, warning that the rally had gone too far too fast.
“The market is struggling to reconcile its expectations for more stimulus with the harsh economic realities,” said Yi Wang, head of quantitative investment at CSOP Asset Management Ltd. “Investors want to see a swift translation of stimulus measures into improving corporate earnings and macro data, but there’s a time lag between expectation and reality.”
The Ministry of Finance is set to hold a briefing on Saturday to introduce measures to strengthen fiscal policy and support growth. However, investors are skeptical about the government’s ability to arrest the economic slowdown, which threatens to put China’s 2024 growth target of around 5% out of reach.
Weak holiday-spending data also dampened sentiment, with Chinese tourists spending less during the Golden Week holiday than they did before the pandemic. Meanwhile, leveraged equity positions have jumped, risking a greater market downturn if investors need to unwind their positions.
As the market navigates this period of uncertainty, some global money managers are turning to selective stock-picking, seeking value in industries such as internet, sportswear, and tourism. “We’re at a stage where stock selection becomes more important,” said Nicholas Yeo, head of China equities at abrdn Plc. “We’re in a bull zone, but there will be volatility. We maintain a long-term view on sectors like consumption, which is key to the economy in the long run.”
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