The recent surge in Chinese stock prices hit the pause button on Tuesday after Beijing failed to roll out another major stimulus package, surprising investors hoping to add more fuel to the unprecedented rally.
The Hong Kong benchmark Hang Seng Index (^HSI), which is packed with major Chinese stocks, fell about 9% on Tuesday, its worst day since October 2008, after rising about 20% last month after China had unleashed its strongest results. aggressive monetary stimulus since the pandemic.
China’s benchmark CSI 300 (000300.SS) also had a volatile day as expectations of a major stimulus announcement fueled an initial 10% rise after markets reopened following the country’s weeklong holiday. The index later gave up these gains, ending the day up a more modest 6%.
The stimulus, an attempt by China to correct its struggling economy, was first announced on September 24. Since then, strong inflows have dramatically boosted Chinese stocks, especially in real estate and consumer goods, as investors bet on Beijing’s comeback. .
But Wall Street remains divided on whether now is the right time to buy into the market.
“The short-term pop [signals that] people are feeling better,” Jeremy Schwartz, chief investment officer at WisdomTree, told Yahoo Finance’s Market Domination. “Will it be enough to get their economy moving? That’s very much an open question [because] The sentiment was so, so negative.”
The stimulus, which includes interest rate cuts, lower reserve requirements for banks, liquidity for the stock market and mortgage relief, comes as the nation’s second-largest economy tries to pull itself out of a prolonged slump fueled by deflationary pressures. of a sluggish real estate market and weak domestic demand.
At a news conference Tuesday hosted by China’s top economic planner, the National Development and Reform Commission (NDRC), Beijing said it is willing to provide further support to achieve its economic goals, including an annual growth target of “about 5%.”
“We have full confidence in achieving the annual economic and social development goals,” Zheng Shanjie, chairman of the NDRC, told reporters. However, he acknowledged that China’s economy is facing a “more complex and extreme” global environment.
At the press conference, the NDRC announced it would spend 200 billion yuan ($28 billion) on local governments for expenditure and investment projects by the end of the year. But economists have been waiting for the announcement of a budget package worth about 2 trillion yuan ($284 billion).
Other Chinese listed stock exchanges and companies were also on the move on Tuesday. The Shanghai Composite (000888.SS), a key indicator of the overall performance of the Chinese stock market, posted a gain of around 5% after initially opening the day higher. The index is up double digits and up more than 20% from its September low. It’s up about 30% in the past month.
Similarly, shares of Chinese e-commerce giants like Alibaba (BABA) and PDD Holdings (PDD) have soared over the same period, up more than 35% and 55% respectively, despite some losses on Tuesday.
WisdomTree’s Schwartz said investing in the region depends on whether traders can afford to be “nimble” and “move in and out of the market” depending on the level of risk.
“For long-term strategic investors, it’s tough,” he said, noting that a “very unpredictable” geopolitical environment, coupled with the upcoming U.S. elections, further complicates the investment thesis.
“The ultimate question is: Are you going to be rewarded for being in China as a communist country and all the other problems with geopolitics, versus the democratic countries like Japan and India that are more US allies than US adversaries at this point? he said.
Others say this is just the beginning of China’s recovery and now could be the time to reassess the situation.
“We’re really in the very early stages,” Brendan Ahern, CIO at KraneShares, told Yahoo Finance’s Morning Brief. “And then there’s a good chance that better news will come. Instead of looking through the rearview mirror, let’s look through the windshield.”
“If not now, then when?”
Goldman Sachs added its optimistic commentary on Monday in a note titled “China Strategy: If Not Now, When?” The team, led by analyst Kinger Lau, upgraded Chinese stocks from Market Weight to Overweight, calling for a potential upside of between 15% and 20% for both the MSCI China Index (2801.HK) and the CSI 300 Index.
Other major banks, including HSBC Holdings and BlackRock, have also upgraded mainland Chinese shares in recent days, building on expectations that the rally still has more room to run.
“Many China watchers may have suffered from ‘policy fatigue’ over the past one to two years, with policy outcomes in the post-Covid era generally perceived as disappointing,” Goldman Sachs wrote in its report. “Given low market expectations, the latest easing package has positively surprised investors and changed the policy narrative on a number of points.”
The analyst team added: “More stimulus is likely to be needed to turn things around, but the earnings outlook [for Chinese companies] has improved moderately,” with valuations still below historical averages amid depressed stock prices.
‘Even if the rally falters, [Chinese equities] still have a place in investors’ portfolios,” the report said.
As investors look ahead to the next potential catalyst for Chinese stocks, analysts say the positive momentum will likely depend on the size and implementation of more fiscal policy, not just monetary support.
“A well-targeted fiscal stimulus, aimed at rejuvenating the real estate sector and reviving animal spirits, could significantly improve China’s economic prospects and potentially generate positive spillovers to the global economy,” wrote Seema Shah, chief strategist at Principal Asset Management, in a note on Monday.
“While investors have reason for cautious optimism, much will depend on the extent and implementation of the various measures, the details of which are still pending.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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