Chinese stocks experienced a significant pullback on Tuesday after Beijing did not announce another substantial stimulus package, surprising investors who anticipated further support to bolster the ongoing rally.
The Hang Seng Index in Hong Kong, heavily weighted with large Chinese companies, plummeted nearly 9%, marking its steepest decline since October 2008. This drop followed a remarkable 20% rise over the previous month, fueled by China’s most aggressive monetary stimulus since the pandemic began. Meanwhile, the CSI 300 Index faced a turbulent session, initially soaring by 10% as markets reopened after a weeklong holiday before ultimately settling for a more modest 6% gain.
The stimulus measures, unveiled on September 24, aim to address China’s struggling economy, which has been hampered by deflationary pressures linked to a sluggish property market and weak domestic demand. The package includes interest rate cuts, reduced reserve requirements for banks, liquidity provisions for the stock market, and mortgage relief, among other initiatives. These measures have prompted a surge of inflows into Chinese equities, particularly in the real estate and consumer staples sectors, as investors bet on a potential recovery.
Despite the recent market momentum, Wall Street analysts remain divided on whether now is the right time to invest. Jeremy Schwartz, chief investment officer at WisdomTree, stated in an interview with Yahoo Finance’s Market Domination, “The short-run pop indicates that people are feeling more optimistic. However, whether this is sufficient to stimulate the economy remains an open question, especially given the previously negative sentiment.”
During a press conference on Tuesday, Zheng Shanjie, chairman of the National Development and Reform Commission (NDRC), reassured reporters of Beijing’s commitment to further economic support to achieve its annual growth target of “around 5%.” However, he acknowledged the challenges posed by a “more complex and extreme” global environment.
The NDRC announced a modest allocation of 200 billion yuan ($28 billion) to local governments for spending and investment projects by the end of the year. Yet, many economists had hoped for a more substantial fiscal package of approximately 2 trillion yuan ($284 billion).
On Tuesday, other Chinese stock exchanges also saw notable movements. The Shanghai Composite Index eked out a gain of around 5% after initially opening higher. Since hitting lows in September, the index has surged by more than 20%, representing an overall increase of about 30% in the past month.
E-commerce giants like Alibaba and PDD Holdings have similarly benefitted from the recent market rally, with their shares rising over 35% and 55%, respectively, despite facing minor losses on Tuesday.
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