Chinese stocks slide, fueling concerns about market outlook – BNN Bloomberg

(Bloomberg) — Chinese stocks slumped as doubts arose again about whether Beijing’s stimulus package will be enough to support an economy mired in deflation and a housing crisis.

The CSI 300 index fell 2.7%, extending losses from an Oct. 8 high to more than 9%. An index of Chinese stocks listed in Hong Kong fell 4%, capping its worst day in a week. The yuan also weakened.

The market has been volatile in recent sessions as investors debated the sustainability of the recovery that began late last month, with a lack of clarity over the size of Beijing’s planned fiscal stimulus weighing on sentiment. Weak recent economic data, including inflation and trade figures, have underscored the need for further stimulus measures.

There are concerns that “any stimulus could be more focused on risk reduction, particularly around local government debt, than on growth,” said Xin-Yao Ng, Asian equity investment manager at abrdn Asia Ltd. “Investors definitely prefer a bazooka to revitalize the economy quickly.”

Tuesday’s price action suggests investors were unimpressed by a Caixin report that said China could raise 6 trillion yuan ($846 billion) of extra-long government bonds over three years. Bloomberg later reported that local authorities would issue the bonds primarily to refinance their off-balance sheet debt.

After the central bank’s easing measures at the end of September, investors called on the government to boost public spending. Officials at a weekend briefing promised new measures to support the real estate sector and hinted at more government borrowing, without specifying an amount.

There is concern “that the stimulus measures announced so far are simply not enough,” said Nathan Thooft, chief investment officer and senior portfolio manager at Manulife Investment Management. “We are tactically overweight Chinese stocks. We don’t necessarily think this is a structural change.”

The yuan slipped as much as 0.6% to 7.1343 per dollar in the offshore market, its weakest level in about a month. So-called China proxies in Asia – currencies influenced by investor confidence in the country – also fell.

The Hang Seng China Enterprises Index, which includes Chinese stocks listed in Hong Kong, has fallen more than 12% since October 7.

Growing divide

As the rally falters, the divide between global investors is growing.

Morgan Stanley Wealth Management warned that investors should stay away from soaring Chinese stocks because stimulus measures would not be enough to repair the battered economy. The Wells Fargo Investment Institute is also skeptical that the recovery will last given the depressed sentiment among Chinese consumers.

UBS Group AG still sees value and says increased interest from retail investors should give shares further upside.

China’s export growth slowed more than expected in September, dampening a trade rebound that had been a bright spot for a struggling economy. Credit expansion was also disappointing given the still weak domestic demand.

“China’s policy stimulus signal led us to remain modestly overweight, particularly given depressed valuations,” BlackRock Investment Institute strategists including Wei Li wrote in a note. “Few details are available, so we may change our mind if future announcements disappoint.”

– With support from Sujata Rao and Tian Chen.

©2024 Bloomberg LP