(Bloomberg) — Chinese shares fell to the brink of a correction in a sign of growing disappointment over the pace of stimulus.
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The CSI 300 Index ended the day 0.6% lower, bringing its decline from the October 8 high to almost 10%. A gauge of Chinese shares listed in Hong Kong swung between gains and losses before rising 0.4% as of 3:36 p.m. local time.
The market has been on a rollercoaster since late September, when a series of central bank stimulus measures unleashed a burst of optimism that is now rapidly cooling off. As Beijing takes its time to hammer out a fiscal spending plan, skepticism is growing over whether authorities are willing to deploy more firepower to turn around the economy and markets.
“This historic surge in momentum in late September is obviously unsustainable, and given the speed at which markets rose, it could fall just as quickly,” said Marvin Chen, a strategist at Bloomberg Intelligence. “But overall policy actions are moving in the right direction more quickly and when the dust settles, Chinese equities may still trade in a higher range than before.”
While a 10% drop would push a benchmark into a technical correction, the extreme volatility that has gripped Chinese stocks of late has made such milestones less meaningful. The CSI 300 rose more than 30% in about three weeks since mid-September before losing momentum.
Chinese investors are divided over whether the rally has already peaked, or whether there is room for further gains.
In a BofA Securities fund manager survey conducted from October 4 to 10, around half of respondents saw up to 10% upside potential for Chinese offshore stocks over the next six months, while another 33% saw gains between 10% and 20% % saw.
Nearly a third of them said they are building their exposure based on signs of easing, a sharp increase from just 8% in the previous month. Yet three-quarters of respondents said the market is experiencing a ‘structural derating’.
Real estate shares
The next major event is a press conference by the housing minister on Thursday, where authorities could provide more details on measures to support the country’s collapsing real estate sector and boost economic growth. Any disappointment resulting from this event could lead to another sell-out.
Chinese property shares rose ahead of the briefing, with developer shares rising as much as 10% after losing 7% on Tuesday, according to Bloomberg Intelligence. The sector was at the center of investor interest, with shares seeing wild swings as policy expectations waxed and waned.
Minister Ni Hong will be the last senior economic official to speak publicly about the government’s pivot toward stabilizing growth, following People’s Bank of China Governor Pan Gongsheng, Finance Minister Lan Fo’an and the chairman of the country’s economic planning agency, Zheng Shanjie. .
The last two press conferences of the National Development and Reform Commission and the Ministry of Defense “have been disappointing, so there should be no reason to raise hopes for tomorrow’s briefing,” said Vey-Sern Ling, director of Union Bancaire Privee.
–With help from Abhishek Vishnoi and Jake Lloyd-Smith.
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