Chinese stock markets experienced significant declines on Wednesday, driven by disappointing economic indicators and a hesitant stance from Beijing regarding further economic stimulus measures. The benchmark CSI 300 Index plummeted by 7.4%, marking its steepest drop since 2020, as traders reacted to investor concerns following the brief return to markets after the Golden Week holiday.
Asian markets as a whole recorded a second consecutive day of losses, with Hong Kong’s stocks falling more than 3%. Amid these developments, US equity futures also slid, prompted by reports indicating the US Justice Department is considering a potential breakup of Google.
Investor anxiety in China has escalated, largely stemming from doubts about the sufficiency of the latest stimulus efforts to drive a robust recovery in the stock market. A recent survey highlighted a lack of spending among Chinese tourists during their holiday, while media reports suggested that new policy measures are needed to stabilize both growth and investor sentiment.
“To sustain market enthusiasm, a more aggressive fiscal policy or effective market stabilization measures may be required,” said Homin Lee, a senior macro strategist at Lombard Odier. “We could see continued market fluctuations until the upcoming National People’s Congress Standing Committee meeting and the US elections in early November.”
In a pivotal move, China’s National Development and Reform Commission (NDRC), the country’s chief economic policymaking body, outlined plans for a mere 200 billion yuan (approximately $28 billion) in advanced spending from next year’s budget. This figure stands in stark contrast to analysts’ projections that suggested the need for a fiscal package of up to 3 trillion yuan.
In recent days, various strategists and asset managers have expressed skepticism regarding the sustainability of the current equity rally. Many have called for the Chinese government to back its spending promises with tangible financial commitments, fearing that prices of some stocks may be overinflated.
“The absence of any new policy announcements from the NDRC was a letdown for the market,” commented Steven Leung, executive director at UOB Kay Hian in Hong Kong. “We anticipate ongoing volatility through the fourth quarter, but liquidity should return—a potential buying opportunity for overseas investors who have historically been underweight in greater China.”
On the corporate front, Alimentation Couche-Tard Inc. has re-engaged with Seven & i Holdings Co., signaling its interest in acquisition discussions with a proposed price of ¥7 trillion (about $47.2 billion) following an initial offer rejection, ultimately sending shares of the Japanese firm soaring by up to 12%.
In other regional news, the New Zealand dollar and bond yields fell after the country’s central bank implemented a significant 50 basis-point cut to its benchmark interest rate. Meanwhile, India is set to announce its own rate decision later today. South Korea celebrated a successful inclusion into FTSE Russell’s benchmark bond index, culminating extensive efforts to revise its financial market infrastructure.
Amidst this backdrop, U.S. Treasury yields remained relatively stable, following a previous week of selling pressure that was exacerbated by the latest labor market data affecting expectations around interest rate cuts. The U.S. 10-year Treasury yield hovered around 4%, as market participants awaited forthcoming inflation figures.
In the context of ongoing U.S. fiscal discussions, Federal Reserve officials continue to clarify their approach to monetary policy, with varied perspectives on the pace and timing of potential rate reductions.
As the week progresses, key economic events loom on the horizon, including the release of Federal Reserve meeting minutes and inflation data, as well as earnings announcements from major financial institutions. The evolving landscape of geopolitical tensions and economic policy will undoubtedly shape market trajectories in the coming days.
Investors are advised to remain vigilant as market sentiment sways under the influence of fiscal policy discussions, corporate earnings releases, and international economic indicators, all critical factors in navigating this dynamic financial environment.