The recent surge in Chinese stocks hit the pause button on Tuesday after the Chinese government failed to roll out another massive stimulus package, hoping to further fuel an unprecedented rally. It was a surprise to investors.
Hong Kong’s benchmark Hang Seng Index (^HSI), which includes many large-cap Chinese stocks, fell about 9% on Tuesday, the worst since October 2008, after rising about 20% last month on the back of rising Chinese stock prices. It was the day of Aggressive financial stimulus since the pandemic.
China’s benchmark CSI 300 (000300.SS) also had a volatile day after the market reopened from the country’s week-long holiday, with hopes of a big stimulus announcement accelerating an initial 10% rise. It became. The index then gave up those gains and ended the day with a more modest 6% gain.
The stimulus package, China’s effort to get its sluggish economy back on track, was first announced on September 24. Since then, a surge in capital inflows has driven Chinese stocks, particularly in real estate and consumer staples, up dramatically as investors bet on a resurgence of the Chinese government. .
But Wall Street remains divided on whether now is the right time to enter the market.
“Short-term pop” [signals that] “People are feeling better,” Jeremy Schwartz, WisdomTree’s chief investment officer, told Yahoo Finance’s Market Domination. it’s a very open question [because] The feelings were very, very negative. ”
People walk in front of the Hong Kong Stock Exchange building as the market closes on Tuesday, October 8, 2024, with the benchmark Hang Seng Index plummeting by more than 9%. (AP Photo) (ASSOCIATED PRESS)
The stimulus package includes lower interest rates, lower bank reserve requirements, stock market liquidity and mortgage relief, helping the nation’s second-largest economy face an extended period of economic stress caused by deflationary pressures. This comes as Japan is trying to emerge from a slump. This is due to the slump in the real estate market and weak domestic demand.
At a press conference on Tuesday hosted by China’s top economic planner, the National Development and Reform Commission (NDRC), the Chinese government announced further support to achieve its economic goals, including “an annual growth target of about 5%.” He said he is working hard to implement it. . ”
NDRC Chairman Jeong Sun-kee told reporters: “We have full confidence in achieving the economic and social development goals for the year.” However, he acknowledged that China’s economy is facing a “more complex and extreme” global environment.
The NDRC announced at a press conference that it will issue 200 billion yuan ($28 billion) to local governments for spending and investment projects by the end of the year. But economists are still waiting for fiscal policy measures worth about 2 trillion yuan ($284 billion) to be announced.
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Other Chinese listed exchanges and companies made similar moves on Tuesday. The Shanghai Composite (000888.SS), a key indicator of overall Chinese stock market performance, rose about 5% after opening higher. The index rose by double digits and is up more than 20% from its September low. It has increased about 30% in the past month.
Similarly, shares of Chinese e-commerce giants such as Alibaba (BABA) and PDD Holdings (PDD) rose more than 35% and 55%, respectively, during the same period, despite single-digit losses on Tuesday.
WisdomTree’s Schwartz said investing in the region depends on traders being able to move “in and out” of the market “with agility” depending on their level of risk.
“For strategic, long-term investors, this is difficult,” he said, adding that the “very dangerous” geopolitical environment and upcoming US elections further complicate the investment thesis. pointed out.
“The ultimate question is, you’re in China as a communist country and with all of its other geopolitical problems, versus democracies like Japan and India, which are more allies of the United States than adversaries at this point. “Is it rewarding to be there?” he said.
Some say this is just the beginning of China’s recovery and that it may be time for a reassessment.
“We’re really, really in the early stages,” KraneShares CIO Brendan Ahern told Yahoo Finance’s Morning Brief. “That way, you’re more likely to get good news. Instead of looking through your rearview mirror, try looking through your windshield.”
“If not now, when?”
The recent surge in Chinese stocks hit the pause button on Tuesday after the Chinese government failed to roll out another massive stimulus package, hoping to further fuel an unprecedented rally. It was a surprise to investors. (Getty Images) (Thomas Lagina, via Getty Images)
Goldman Sachs added to its bullish comments 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, with both the MSCI China Index (2801.HK) and CSI300 index potentially up 15% to 20%. he claimed.
Other major banks, including HSBC Holdings and BlackRock, have also increased their prices in mainland Chinese stocks in recent days, reinforcing expectations that there is still room for gains.
“Many China watchers may have suffered from ‘policy fatigue’ over the past year or two, with policy developments in the post-corona era generally perceived as less than overwhelming,” Goldman Sachs said in a report. ” “Given the low market expectations, the latest easing measures provided a nice surprise to investors and changed the policy narrative in several aspects.”
The analyst team added: “Further stimulus is probably needed to turn things around, but the earnings outlook is bleak.” [for Chinese companies] “Valuations have improved modestly,” and valuations remain below historical averages amid sluggish stock prices.
“Even if the rally is sluggish, [Chinese equities] remain present in investors’ portfolios,” the report said.
Investors are hoping for the next boost in Chinese stocks, but analysts say positive momentum is likely to depend on the size and implementation of further fiscal policy, rather than just monetary support. There is.
Seema Shah, Chief Global Strategist at Principal Asset Management “This could have positive ripple effects on the global economy.” Monday memo.
“There are reasons for investors to be cautiously optimistic, but much will depend on the scale and implementation of the various measures, with details still to be determined.”
Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canalLinkedIn, email alexandra.canal@yahoofinance.com.
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