Asian stocks experienced mixed trading on Monday as investors grappled with the implications of China’s recent economic stimulus promises, which, while comprehensive, lacked specific details.
At a highly anticipated news conference on Saturday, Finance Minister Lan Foan pledged to “significantly increase” government debt, but the overall scale of the stimulus remains uncertain—information crucial for assessing the sustainability of any resulting stock market rally.
Analysts at Morgan Stanley noted a divide in perception, stating, “Most onshore investors believe that Beijing’s decision to restructure local government and housing debt using central government funds carries more significance than many foreign investors realize.”
This divergence was evident on Monday, with Hong Kong shares opening slightly lower and showing volatility in early trading, in stark contrast to the strong performance of mainland Chinese stocks. The Hang Seng Index last recorded a marginal decline of 0.01%, while the CSI 300 blue-chip index rose 1.6%.
Despite the mixed performance, property stocks both onshore and offshore posted substantial gains as investors speculated that the latest stimulus measures could benefit China’s struggling property sector. The Hang Seng Mainland Properties Index increased by 2.2%, while the CSI 300 Real Estate Index surged by 3.7%.
Overall, the MSCI Asia-Pacific Index, excluding Japan, dipped by 0.11% after falling 1.7% last week as the rally in Chinese stocks paused. Trading volumes in Asia were lower on Monday due to Japan being on holiday.
In the United States, stock futures also edged downward, with S&P 500 futures losing 0.1% and Nasdaq futures declining by 0.25%. European futures showed slight declines as well, with EUROSTOXX 50 futures and FTSE futures easing by 0.08% and 0.05%, respectively.
Adding to concerns about China’s economic outlook, data released on Sunday revealed that consumer inflation unexpectedly eased in September, while producer price deflation deepened. This has further highlighted persistent worries regarding the Chinese economy, causing the onshore yuan to fall by 0.11% to 7.0743 per U.S. dollar, with the offshore yuan depreciating by 0.2% to 7.0828 per dollar.
Oil prices also declined by more than $1 per barrel on Monday amid fears of decreasing Chinese demand. Brent crude futures fell by 1.32% to $78.00 per barrel, while U.S. West Texas Intermediate crude futures decreased by 1.3% to $74.58 per barrel.
Despite the uncertainties, Goldman Sachs has raised its real GDP forecast for China to 4.9% for this year, up from 4.7%. The analysts stated, “While we have upgraded our cyclical outlook in light of the more forceful and coordinated China stimulus, our structural view on China’s growth remains unchanged.” They emphasized that the “3D” challenges—deteriorating demographics, ongoing debt deleveraging, and global supply chain de-risking—are unlikely to be mitigated by the recent policy easing.
China is set to release its third-quarter GDP data on Friday, which will provide further insights into the economic landscape.
In the currency markets, movements were largely muted, with the U.S. dollar maintaining strength due to diminished expectations for a significant Federal Reserve interest rate cut next month. The dollar hovered near a seven-week high at 103.03 against a basket of currencies.
Traders have largely ruled out the possibility of a 50-basis-point rate cut from the Fed in November, following last week’s data indicating that consumer prices rose slightly more than expected in September, coupled with recent economic reports highlighting resilience in the labor market. The British pound fell by 0.13% to $1.3050, while the euro eased by 0.11% to $1.0923.
Market participants are anticipating a UK inflation reading later this week, along with an interest rate decision from the European Central Bank.
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