(Bloomberg) — Chinese stocks’ rally on their return from a weeklong vacation fizzled as traders questioned Beijing’s determination to add more stimulus. Stocks in Hong Kong plummeted.
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The benchmark CSI 300 index was up only about 5% in 90 minutes of trading on Tuesday, after rising almost 11% in the first few minutes. The measure had won for nine consecutive sessions through September 30 before entering the Golden Week break. A gauge of Chinese stocks listed in Hong Kong fell as much as 11% after rallying by almost the same amount in the period when domestic markets were closed.
A Tuesday news conference by China’s top economic planner, the National Development and Reform Commission, to discuss a package of policies aimed at boosting economic growth had little to offer.
“The durability of this China rally will depend on action being taken after words on the fiscal side of the equation,” said Aleksey Mironenko, global head of investment solutions at Leo Wealth in Hong Kong. “The key thing we are watching going forward: what policies will be announced in the coming weeks after the Politburo and State Council statements? That will determine whether our overweight is tactical (which will be removed as relative valuations change) or strategic.”
Even before mainland markets reopened, skepticism had been growing over the rise in Chinese stocks over the past two weeks. Many strategists and fund managers around the world had viewed the recent rally with skepticism and hoping that Beijing would back up its stimulus promises with real money. Some were also concerned that stocks were already reaching overvalued levels.
The Hang Seng China Enterprises Index, which comprises Chinese stocks listed in Hong Kong, had risen more than 30% over the past month through Monday, making it the best performer among more than 90 tracked global stock indicators. by Bloomberg.
The world’s second largest stock market has had multiple boom and bust cycles. Faced with slowing growth and disinflationary pressures, China went into stimulus mode in late 2014, unleashing a stunning stock market rally that crashed spectacularly in mid-2015. Back then, the country’s retail traders surged their leverage and sent the Shanghai Composite Stock Market Index more than doubling its level from October 2014 to June 2015. The stock indicator then plummeted more than 40% in two months.
“We need tax reform and, hopefully, really major economic reform,” Eva Lee, head of Greater China equities at UBS Global Wealth Management, said on Bloomberg Television. “At the end of this year, if we still don’t take any major action, we will probably end up at this level.”
–With the help of Tian Chen, John Cheng and Sangmi Cha.
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