China’s Stock Market Fever Breaks as Authorities Disappoint
HONG KONG—An epic Chinese stock market rally lost steam Tuesday after a press conference by the country’s economic planning agency disappointed hopes for more fiscal stimulus measures and raised questions about whether Beijing has more to offer the ailing economy.
The letdown dampened a wave of euphoria that had gripped investors in China in recent weeks, as hopes for large-scale Chinese government support for the world’s second-largest economy propelled stock prices on one of their giddiest runs in recent memory.
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Investors hoping for another rocket ride Tuesday after China’s weeklong National Day holiday instead experienced a roller coaster, as an early morning burst of bullishness sent China’s benchmark CSI 300 up more than 10% in the first minute of trading before gains petered out and it finished a more modest 5.9% rise.
Hong Kong’s benchmark Hang Seng Index, which is packed with large Chinese stocks, finished the day deep in negative territory, tumbling 9.4%—enough to unspool the collective 9.3% rise over the past four trading sessions, as mainland China was on vacation.
The sinking feeling that set in among investors on Tuesday was, for many, a familiar one.
In recent years, China’s stock market has enjoyed similar stimulus-fueled bull runs, only to have them end in tears. Since the beginning of the Covid-19 pandemic, Chinese stocks have languished alongside the broader economy, with the country’s postpandemic recovery sagging under the weight of a prolonged property sector crisis and anemic consumer sentiment.
That all seemed to suddenly change two weeks ago when China’s central bank and the Communist Party’s top policymaking body, in a barrage of near-daily announcements, rolled out interest rate cuts and other pronouncements of support for the economy—a seeming concession to months of pleas from economists for more government support.
The show of strength sent stocks soaring, right up until mainland China went on its seven-day National Day holiday beginning last Tuesday. In the five trading sessions before the holiday, the CSI 300 index soared 25%, erasing the previous nearly 14 months’ losses in one go.
As optimism swelled, individual investors took to social media to jokingly suggest that Beijing should cancel the seven-day holiday so that they could keep buying stocks. The number of new trading accounts at major brokerages hit a record high during the weeklong break, state broadcaster China Central Television reported.
Still, many economists remained cautious. Despite the strong official signals and generous monetary policy loosening, focus quickly turned to whether China would back that up with fiscal support, which has long been seen as a key ingredient in any sustainable economic recovery.
Some strategists, referencing various market rumors and media reports, offered guesses on how big a notional stimulus package might be, with many putting the number somewhere between one trillion yuan and three trillion yuan, equivalent to $142 billion and $427 billion. Some influential Chinese market commentators even touted a potential package of more than 10 trillion yuan, equivalent to roughly 8% of China’s gross domestic product last year.
All those hopes hit a crescendo on Sunday, just before the end of the long holiday, when the country’s economic planning agency, the National Development and Reform Commission, announced a press conference for Tuesday morning, raising hopes for a big announcement.
On Monday, Goldman Sachs urged clients to clamber aboard the market rally. “This time is different in terms of policy response,” analyst Kinger Lau and colleagues told clients in a note titled: “If Not Now, When? 10 Reasons to Buy China Equity.”
BlackRock, in a commentary published the same day, told its clients it was taking a more optimistic stance on Chinese stocks after policy signals “suggested that major fiscal stimulus may be coming.”
As Tuesday morning dawned in China, optimism among individual investors had reached a fever pitch.
Stock trading in Shanghai, Shenzhen, Beijing and Hong Kong opened with a bang at 9:30 a.m., with the benchmark CSI 300 surging more than 10% in the opening seconds, as mechanisms capped the daily rise in individual shares by that amount. (Stocks trading on one of the constituent exchanges of the CSI 300 can rise as much as 20% before triggering the limit.)
Central-bank regulators, meanwhile, made it known that they were keeping a close eye on commercial banks to ensure they didn’t channel their own funds into the stock market—an attempt to tamp down the feeding frenzy.
But as the highly-anticipated press conference began in Beijing at 10 a.m., the market excitement quickly evaporated as China’s economic-planners made few mentions of any new concrete stimulus measures. Instead, officials repeated old promises, reiterating a plan to continue destocking the housing market and issuing ultralong special treasury bonds.
By the end of the press conference, and the morning trading session in Shanghai, Shenzhen and Beijing, some $356 billion worth of stocks had changed hands—almost as much as the $372 billion turnover for the full day on Sept. 30, the last day before the long holiday and the previous historic high.
As Chinese investors’ enthusiasm waned, major indexes pared back earlier gains further as trading volume dried up. By the end of the day, the CSI 300 saw its morning gains cut roughly in half, though the gain was still enough to finish at the highest level since July 2022. Hong Kong’s benchmark Hang Seng Index, which had already had four days to price in the mounting excitement, finished with its worst daily decline since October 2008.
It is a healthy pause after the recent sudden market moves, said Winnie Wu, chief China equity strategist at BofA Global Research, who expects the period of unwavering gains to give way to a choppier period. “Investors still want to get exposure, but…valuation is no longer cheap,” she said, adding that valuations have returned to long-term average levels.
A question remaining is whether the country’s sudden fervor for stock investing can weather the volatility and uncertainty around government policy, economic growth and market sentiment.
For many Chinese households, the weeklong equity-market winning streak offered a reason to believe that China’s long-suffering domestic stocks could serve as a safe vehicle for their investments and savings. The country’s property market, which for decades served as the go-to place for Chinese households to park their wealth, has been in a yearslong doldrums that doesn’t look set to lift soon. Investing abroad is replete with hurdles.
Even before Tuesday’s disappointment, some investment banks had adopted a more circumspect posture about whether the recent signals from policymakers had done anything to fundamentally change the outlook for the world’s second-largest economy.
While policymakers had shifted their tone, there were still few concrete policies or stimulus measures to point to, Morgan Stanley equity strategist Jonathan Garner had told clients in a note on Monday.
Garner said breaking China out of its current disinflationary cycle would require a fiscal stimulus equivalent to roughly 5% of GDP over the next two years, as well as a holistic restructuring plan for local governments’ massive debt load.
“China policy easing is important but valuations have already rerated substantially,” Garner wrote, reaffirming his cautious position on Chinese stocks.
Ting Lu, chief China economist at Nomura, had similarly warned clients in a note on Thursday last week that in a gloomy scenario, a stock-market sugar high could be followed by a crash, similar to an earlier burst of giddiness in 2015. Even in a more upbeat scenario, stimulus policies rolled out in the coming weeks may only have a limited impact on the real economy’s many challenges, Lu said.
Some investment bank analysts, offering some comfort on Tuesday, said investors shouldn’t have expected too much from the economic-planning agency, whose main duty is to formulate and implement strategies on economic and social development—and which doesn’t ordinarily announce bold fiscal measures, HSBC economists Jing Liu and Erin Xin wrote in a note after the Tuesday morning letdown.
Instead, the HSBC analysts wrote, details of any government spending package are more likely to come from China’s cabinet and the Ministry of Finance—neither of which has yet scheduled any coming news conferences. “More patience, please,” Liu and Xin wrote.
Write to Rebecca Feng at rebecca.feng@wsj.com