(Bloomberg) — A domestic rally in Chinese stocks after returning from a weeklong holiday failed as traders questioned Beijing’s determination to add more stimulus. Shares in Hong Kong plummeted.
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The benchmark CSI 300 Index rose about 5% about 90 minutes into trading on Tuesday, after rising nearly 11% in the opening minutes. The benchmark had risen for nine consecutive sessions through September 30 before the Golden Week break. A gauge of Chinese stocks listed in Hong Kong tumbled as much as 11% after rising by almost the same amount during the period when domestic markets were closed.
A press conference on Tuesday 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 sustainability of this Chinese rally will depend on the action that follows words on the fiscal side of the equation,” said Aleksey Mironenko, global head of investment solutions at Leo Wealth in Hong Kong. “The most important thing we are looking at in the future – what policies will be announced in the coming weeks after the statements of the Politburo and the State Council? That will determine whether our overweight is a tactical one – which we will remove if relative valuations change – or a strategic one.”
Even before mainland markets reopened, skepticism grew over the rise in Chinese stocks over the past two weeks. Many strategists and fund managers around the world had viewed the recent rebound with skepticism and waited for Beijing to back its stimulus promises with real money. Some were also concerned that many stocks are already reaching overvalued levels.
The Hang Seng China Enterprises Index, which includes Chinese stocks traded in Hong Kong, was up more than 30% in the month through Monday, making it the best-performing index among more than 90 global stock gauges compiled by Bloomberg are followed.
The world’s second-largest stock market has seen multiple boom-and-bust cycles. Faced with slowing growth and disinflationary pressures, China turned to stimulus in late 2014, sparking an eye-popping stock market rally that came crashing back to earth in spectacular fashion in mid-2015. At the time, the country’s retailers ramped up their debt and sent Shanghai’s The Stock Exchange Composite Index more than doubling its level between October 2014 and June 2015. Subsequently, the stock index fell by more than 40% in two months.
“We need fiscal reforms, and then hopefully some really big economic reforms,” Eva Lee, head of Greater China Equities at UBS Global Wealth Management, said on Bloomberg Television. “If we still don’t have a major measure, we will probably end up at this level by the end of this year.”
–With help from Tian Chen, John Cheng and Sangmi Cha.
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