China stock rally fizzles as stimulus optimism fades

TOKYO – China’s world-beating equity rally lost momentum after a key briefing expected to unveil economic stimulus measures underwhelmed investors.

The benchmark CSI 300 pared its 11 per cent gain at the open to 2 per cent in an hour after trading began after a week-long holiday. A gauge of Chinese stocks in Hong Kong had their worst intra-day tumble since 2008.

Broader Asian equities dropped after Wall Street was dragged down by a tech sell-off, geopolitical angst and bets on a smaller Federal Reserve rate cut. MSCI’s Asia-Pacific share gauge dropped the most in a month.

A briefing by China’s top economic planner failed to deliver more stimulus initiatives after earlier policy announcements before the Golden Week holiday break sent shares in China and Hong Kong surging. From JPMorgan Asset Management to HSBC Global Private Banking, numerous investors questioned the sustenance of that rally. 

“While the policy tone is still certainly indicating a supportive tone, the limited new measures appear to be disappointing markets for now,” said Greater China chief economist at ING Bank Lynn Song. “Moving forward, the market trend will likely depend on the speed and strength of further policy follow-up from other ministries.”

At the briefing by the National Development and Reform Commission (NRDC), officials said they are confident of reaching its economic targets this year and promised further support for growth, although they held back from unleashing more stimulus moves.

They added that China would continue to issue ultra-long sovereign bonds next year to support major projects and invest 100 billion yuan (S$18.4 billion) on key strategic areas.

“I wouldn’t be surprised if we see bigger volatility around events like the NDRC now, because expectations have been raised,” said Mr Phillip Wool, head of portfolio management at Rayliant Global Advisers. “I do believe policymakers are taking a different tack now, and that’s our focus for the medium- to longer-term.”

There is some convergence in the markets with investors rotating money from Hong Kong to China, benefiting mainland shares, said Bloomberg Intelligence strategist Marvin Chen.

Invesco and Nomura Holdings are also among those viewing the recent rebound with scepticism and waiting for Beijing to back up its stimulus pledges with real money. 

An overheating of the A-share market and the Chinese government’s delivery on its recently announced policy stimulus measures are among the risks investors should watch amid the Chinese stock market rally, according to Morgan Stanley. BLOOMBERG