The recent rally in Chinese stocks paused in the past two days after Beijing failed to roll out another big stimulus package, a surprise to investors hoping to add more fuel to the unprecedented rally.
Hong Kong’s benchmark Hang Seng Index (^HSI), which is packed with big Chinese stocks, fell another 1% on Wednesday after falling about 9% on Tuesday, its worst day since October 2008. The index has risen about 20% in the past. month immediately after China launched its most aggressive monetary stimulus since the pandemic.
China’s benchmark CSI 300 index (000300.SS) also fell, falling 7% on Wednesday as investors fully digested the news. Markets reopened after the week-long holiday the day before, and expectations of a big stimulus announcement initially drove the index up 10% before giving up those gains.
The stimulus, an effort by China to right the course of its struggling economy, was first announced on September 24. Since then, a surge in inflows has dramatically boosted Chinese stocks, particularly in real estate and consumer staples, as investors bet on Beijing’s comeback. .
But Wall Street remains divided over whether now is the right time to buy into the market.
“Short-term pop [signals that] “People are feeling better,” Jeremy Schwartz, chief investment officer at WisdomTree, told Yahoo Finance’s Market Domination. “Will it be enough to move your economy? That is a very open question. [because] “The feeling was very, very negative.”
The stimulus, which includes interest rate cuts, lower reserve requirements for banks, liquidity for the stock market and mortgage relief, among other measures, comes as the country’s second-largest economy tries to emerge from a long crisis driven by deflationary pressures. of a slow real estate market and weak domestic demand.
At a news conference on Tuesday hosted by China’s top economic planner, the National Development and Reform Commission (NDRC), Beijing said it is committed to implementing more support to achieve its economic goals, which include an annual growth target of “about 5%.” “.
“We have full confidence in achieving the annual economic and social development goals,” Zheng Shanjie, president of the NDRC, told reporters. However, he did acknowledge that the Chinese economy faces a “more complex and extreme” global environment.
At the press conference, the NDRC announced that it would issue 200 billion yuan ($28 billion) to local governments for spending and investment projects before the end of the year. But economists have been waiting for a fiscal package worth around 2 trillion yuan ($284 billion) to be announced.
Other exchanges and companies listed in China echoed the downward movements. The Shanghai Composite (000888.SS), a key indicator of overall Chinese stock market performance, fell nearly 7% on Wednesday after making modest gains the previous day. The index is up double digits, jumping more than 20% from its September lows. It has increased approximately 25% over the last month.
Similarly, shares of Chinese e-commerce giants such as Alibaba (BABA), PDD Holdings (PDD), and JD.com (JD) have soared over the same period, up more than 30%, 50%, and 60%, respectively. . despite losses of 9%, 8% and 10% in the last two days.
WisdomTree’s Schwartz said investing in the region depends on whether traders can afford to be “nimble” and “dip in and out” of the market depending on the level of risk.
“For long-term strategic investors, it’s complicated,” he said, noting that a “very dangerous” geopolitical environment, coupled with the upcoming US election, further complicates the investment thesis.
“The fundamental question is: will you be rewarded for being in China as a communist country and for all the other geopolitical problems, versus democratic countries like Japan and India, which are more allies of the United States than adversaries of the United States right now? ? ” said.
Others say it’s just the beginning of China’s recovery and now could be the time to reassess it.
“We’re really in the early stages,” Brendan Ahern, chief investment officer at KraneShares, told Yahoo Finance’s Morning Brief. “And then you have the high probability that better news will come. Instead of looking in the rearview mirror, let’s look out the windshield.”
‘If not now, when?’
Goldman Sachs added to the bullish commentary in a Monday note titled “China Strategy: If Not Now, When?” The team, led by analyst Kinger Lau, upgraded China stocks to Overweight from Market Weight and advocated a potential 15% to 20% upside for both the MSCI China Index (2801.HK) and the CSI 300 index.
Other big banks, including HSBC Holdings (HSBC) and BlackRock (BLK), have also lifted mainland Chinese stocks in recent days, based on expectations that the rally still has more room to continue.
“Many China watchers may have suffered ‘political fatigue’ over the past year or two, with policy execution in the post-Covid era widely perceived as disappointing,” Goldman Sachs wrote in its report. “Given low market expectations, the latest easing package has positively surprised investors and altered the political narrative in some dimensions.”
The analyst team added: “More stimulus is probably needed to turn things around, but the earnings outlook [for Chinese companies] has improved moderately,” with valuations still below historical averages amid depressed stock prices.
“Even if the demonstration falters, [Chinese equities] still have a place in investors’ portfolios,” the report reads.
As investors look to the next potential catalyst for Chinese stocks, analysts say positive momentum will likely depend on the magnitude and implementation of more fiscal policy, rather than just monetary support.
“A well-targeted fiscal stimulus, aimed at rejuvenating the real estate sector and reviving animal spirits, could significantly improve China’s economic prospects, potentially generating positive effects for the global economy,” wrote Seema Shah, chief global strategist at Principal Asset Management, in a note on Monday.
“While investors have reason for cautious optimism, much will depend on the size and implementation of the various measures, the details of which are still pending.”
Alexandra Canal He is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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