China’s blistering stock market rally cooled on Tuesday after Beijing officials held off on unveiling more stimulus for the world’s second-largest economy.
The blue-chip CSI 300 index of Shanghai- and Shenzhen-listed stocks surged 10.8 per cent upon opening after a week-long holiday, before falling back to close 5.9 per cent higher. Markets were disappointed by the lack of significant new fiscal spending announcements from state planners, analysts said.
Hong Kong’s Hang Seng index fell 9.4 per cent, its worst day since October 2008, after having risen 11 per cent over the previous five days. The Hang Seng Tech index tumbled 12.8 per cent. Traders speculated that investors were selling Hong Kong assets to fund mainland trades.
Investor expectations had been building that President Xi Jinping’s economic planners would detail their plans for greater fiscal spending to complement a monetary stimulus that had propelled Chinese equities to their best week since 2008.
Zheng Shanjie, chair of the National Development and Reform Commission, said at a press conference in Beijing that he had “full confidence” the economy would reach its official full-year growth target of about 5 per cent.
“This is what happens when you feed the monster,” said Alicia García-Herrero, chief Asia-Pacific economist at Natixis. “Every day you need to increase the amount of food or it turns against you.”
Chinese markets recorded frenetic trading, with the Hang Seng hitting its highest all-time single-day turnover on Tuesday, while the Shanghai and Shenzhen exchanges showed more than Rmb3tn ($425bn) in turnover by mid-afternoon, according to data provider Wind.
Traders’ disappointment spread into industrial commodities such as oil and metals. Brent crude fell 4 per cent to $77.68, and its US counterpart WTI was down 4.2 per cent. Copper dropped 1.3 per cent, and aluminium shed 2.8 per cent. In Singapore iron ore slipped 4.2 per cent.
Tuesday’s market moves came after institutions including Goldman Sachs, Citi and HSBC raised their targets for Chinese equity performance. The CSI 300 has risen more than 33 per cent over the past month.
Zheng said Chinese authorities would continue to issue ultra-long-dated sovereign bonds in 2025, an indication of more support for the economy. He also said the government would accelerate bond issuance, front-loading about Rmb200bn from next year’s budget for spending and investment projects.
He also pledged to prioritise consumption and expand domestic demand, which has lagged behind expectations, as well as strengthen support for China’s poor and students.
But Chi Lo, senior Asia-Pacific strategist at BNP Paribas Asset Management, said the “core” fiscal stimulus measures observers had hoped for “weren’t really there today.
“There is not enough conviction [in the market] that the Chinese authorities were coming out with forceful fiscal spending, accompanied by monetary easing, to get the system out of the doldrums.”
In response to a question about new special local government bond issuance in the final two months of 2024 — an indication of greater fiscal support for ailing local administrations — NDRC deputy head Liu Sushe said policymakers were focused on realising the proceeds of existing special bonds.
Ting Lu, China economist at Nomura, forecast fiscal measures and other supportive policies in the next several months. “The eventual scale and content of the fiscal package might be quite improvised and uncertain due to the brewing stock bubble and still-controversial debates on what Beijing should focus on,” he said.
China’s prospects of hitting its full-year GDP growth target, which is the lowest in decades, have been called into doubt this year as Xi’s administration struggles to reignite confidence among consumers and businesses in the world’s second-biggest economy.
Investors had also been watching for signs that the September stimulus was flowing through to travel and other consumer spending during China’s golden week holiday.
China recorded 765mn domestic trips over the seven-day period, according to official data released after markets closed, up nearly 6 per cent on last year and up more than 10 per cent from 2019. Travel spending was Rmb700.8bn, 6 per cent higher than the year before.
Earlier on Tuesday, the World Bank said it was maintaining its 4.8 per cent China growth forecast for 2024. The multilateral lender projected China’s GDP growth to slow next year to 4.3 per cent.
Aaditya Mattoo, the bank’s chief economist for east Asia and the Pacific, said the stimulus measures of recent weeks were “not a substitute for the deeper structural reforms needed to boost longer-term growth”.
“Given the lead time for fiscal policy implementation, most of the measures [and] bond proceeds will carry over into next year,” he said. “And even then, consumers may be reluctant to splurge.”
Analysts at Morgan Stanley suggested China’s finance ministry might hold a “follow-up press conference” to provide more details. But they set their price target for Chinese equities at current levels prior to the press conference, indicating no further upside since “the current market valuation has already priced in a lot of expectation for reflationary measures”.
They added that there was “limited chance of meaningful demand stimulus” focused on consumers in the near term, adding that “sustainable reflation” still required a fiscal package of about Rmb10tn focused on consumption, debt restructuring and property.
Additional reporting by Wang Xueqiao in Shanghai
