(Bloomberg) — Chinese stocks ended Tuesday’s morning session lower amid growing debate over how far the rally can go.
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The CSI 300 index was down 0.5% at 11:30 a.m. local time, after falling as much as 1.4% earlier. It rose 1.9% on Monday. A gauge of Chinese stocks listed in Hong Kong fell more than 1%.
Volatility has gripped the market in recent sessions as investors assess the sustainability of the stimulus-driven rally that began late last month. The size of Beijing’s planned fiscal boost remains unclear, adding uncertainty to stock moves. Caixin reported that China could raise 6 trillion yuan ($846 billion) of special ultra-long government bonds over three years as part of its efforts to boost the faltering economy.
“There is a lot of skepticism that the stimulus announced so far is simply not enough,” said Nathan Thooft, chief investment officer and senior portfolio manager at Manulife Investment Management. “We place a tactical overweight on Chinese stocks. “We don’t necessarily think this is a structural change.”
Following the easing measures adopted by the central bank at the end of September, investors have been clamoring for the government to strengthen fiscal spending. Officials promised new measures to support the housing sector and hinted at more government borrowing in a weekend briefing, without giving a figure.
A divide is growing among global investors as the rally shows signs of cooling. Morgan Stanley Wealth Management warned that investors should stay away from rising Chinese stocks as stimulus measures will not be enough to repair the struggling economy. Wells Fargo Investment Institute is also skeptical that the recovery will last, given the depressed sentiment surrounding China’s consumers.
UBS Group AG still sees value and says increased interest from retail investors should give the stock further upside momentum.
The latest economic reports show that stimulus is much needed. Export growth slowed more than expected in September, slowing a rebound in trade that has been a bright spot for a weakening economy. The lending expansion also disappointed in a sign that domestic demand is still weak.
“China’s signal on stimulus policies prompted us to be slightly overweight, especially given depressed valuations,” BlackRock Investment Institute strategists including Wei Li wrote in a note. “Details have been scarce, so we could change our opinion if future announcements disappoint.”
–With the help of Sujata Rao.
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