Chinese stocks have experienced a significant downturn, raising fresh concerns regarding the effectiveness of Beijing’s recent stimulus measures. Investors are questioning whether these efforts will be sufficient to stabilize an economy that is grappling with deflation and a beleaguered property market.
The CSI 300 Index saw a decline of 2.7%, marking a fall of over 9% since it reached its high on October 8. In tandem, the Hang Seng Index, which tracks Chinese shares listed in Hong Kong, plunged by 4%, representing its most significant single-day drop in a week. This trend has been accompanied by a depreciation of the yuan.
Market volatility has sharply increased as investors grapple with the sustainability of the rebound that began in late September. Many feel that the announced fiscal measures from Beijing need further clarity, especially in light of recently disappointing economic data on inflation and trade. These figures highlight the necessity for more comprehensive stimulus action.
Xin-Yao Ng, an investment manager at abrdn Asia Ltd., has raised concerns that the current stimulus might prioritize mitigating risks associated with local government debt over fostering genuine economic growth. “Investors are looking for a significant boost to quickly reignite the economy,” Ng noted.
The market’s reactions indicate that investors were not convinced by a Caixin report suggesting China plans to issue 6 trillion yuan (approximately $846 billion) in ultra-long special government bonds over a span of three years. Sources later revealed that local authorities intend to use these bonds primarily to refinance their off-balance-sheet debts.
Amid the central bank’s easing measures announced in late September, market participants eagerly await additional fiscal support. During a weekend briefing, officials acknowledged the need for new measures to assist the troubled property sector, however, they refrained from specifying the expected amounts.
Nathan Thooft from Manulife Investment Management expressed skepticism regarding the current stimulus efforts, suggesting, “What has been announced so far might not be adequate. We’ve tactically increased our exposure to Chinese equities, but we remain cautious about viewing this as a solid structural shift.”
The yuan has slipped as much as 0.6%, reaching 7.1343 per dollar in the offshore market—the lowest level in nearly a month. Additionally, currencies in Asia that are sensitive to changes in Chinese investor confidence also saw declines.
Following recent rally trends, a divide among global financial experts has emerged. Morgan Stanley Wealth Management has advised caution regarding soaring Chinese stocks, arguing that the government’s stimulus actions will likely fall short of what is necessary to heal the struggling economy. Similarly, Wells Fargo Investment Institute expressed concerns that low consumer sentiment could hinder a lasting rebound, while UBS Group AG maintains a more optimistic view, believing that growing retail investor interest could drive stock momentum.
China’s weaker-than-expected export growth in September, along with disappointing credit expansion, has underscored ongoing issues of sluggish domestic demand. This situation has prompted analysts from BlackRock Investment Institute to advise a cautiously optimistic approach, stating they may consider increasing their exposure based on future policy announcements.
As Chinese stocks navigate this turbulent landscape, the call for a robust and rapid policy response becomes increasingly urgent. Investors globally continue to watch closely, weighing the potential for recovery against the backdrop of economic uncertainty.