(Bloomberg) — Chinese stocks started Tuesday’s session with a bang: The onshore benchmark rose 11% as trading resumed after a weeklong pause. But the enthusiasm faded as the day wore on, with the lack of major stimulus from a key political meeting disappointing investors.
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Ultimately, the CSI 300 Index closed up just 5.9%. In Hong Kong, the Chinese stock index fell more than 10%, set to erase nearly all the gains made while onshore markets were closed for Golden Week.
Anticipation for an opening opening had grown in light of the rally in Hong Kong-listed stocks, news of record account openings at major Chinese brokers in preparation for Tuesday’s session and hopes that the main agency’s press conference of the nation’s economic planning can offer more positive catalysts. .
“The meeting fell short of our modest expectations and apparently those of investors,” Michael Hirson and Houze Song of 22V Research LLC wrote in a note. “While Beijing is keen to revive stocks, it does not feel obliged to abandon financial restrictions to aggressively stimulate the real economy.”
The CSI 300 Index had risen for nine straight sessions through Sept. 30 before the Golden Week break, supported by a stimulus blitz that included interest rate cuts, freeing up cash for banks and support for stocks. That has seen Wall Street heavyweights including Goldman Sachs Group Inc., HSBC Holdings Plc and BlackRock Inc. boost the once-beaten stock market in anticipation of more stimulus.
Tuesday’s rally helped the onshore indicator close at its highest level since July 2022, and some market watchers are already warning about stocks reaching overvalued levels. The index trades at 13.3 times one-year forward earnings compared to a five-year median of 11.9 times.
An overheating A-share market and the Chinese government’s implementation of recently announced policy stimulus are among the risks investors should watch amid China’s stock market rally, analysts wrote in a research note. Morgan Stanley strategists, including Laura Wang in Hong Kong. This adds to the skepticism previously shown by other strategists and fund managers who said they were waiting for Beijing to back up its stimulus promises with real money.
“How long this China rally lasts will depend on the action that follows the words on the tax side of the equation,” said Aleksey Mironenko, global head of investment solutions at Leo Wealth in Hong Kong. “The key thing we are looking at for the future: what policies will be announced in the next few weeks after the statements from the Politburo and the State Council?”
“This will determine whether our overweight is tactical – to be eliminated as relative valuations change – or strategic,” he added.
Tuesday’s session saw revenue in Shanghai and Shenzhen rise to an unprecedented 3.43 trillion yuan ($486 billion). This surpassed the previous record set on September 30, when the CSI 300 Index rose 8.5%, posting its biggest daily surge since 2008.
Several brokers saw their trading apps suffer temporary crashes due to increased volumes, Cailian reported, citing an IT professional at a brokerage firm.
Officials at the National Development and Reform Commission said they would speed up spending, largely reiterating plans to spur investment and increase direct support for low-income groups and recent college graduates. They added that China will continue to issue ultra-long-term sovereign bonds next year to support large projects and bring forward to this year a 100 billion yuan investment in key strategic areas originally planned for 2025.
China’s leaders aim to achieve growth around 5% this year, but economic data in recent months shows that would be difficult to achieve as consumer spending has remained sluggish and the housing downturn persists.
Revenue in Hong Kong also reached record levels, although Chinese shares listed in the city suffered as the focus shifted to mainland markets. The fall in the Hang Seng China Enterprises Index came after it had risen more than 30% over the past month through Monday, making it the best performer among more than 90 global stock indicators tracked by Bloomberg.
“There is some convergence in the markets – a rotation from Hong Kong to China,” said Marvin Chen, a strategist at Bloomberg Intelligence in Hong Kong. “A shares will primarily be the beneficiaries of the domestic liquidity stimulus.”
The world’s second largest stock market has had multiple boom and bust cycles. Faced with slowing growth and disinflation, China went into stimulus mode in late 2014, triggering a spectacular stock market rally that crashed spectacularly back to earth in mid-2015. The Shanghai Stock Exchange Composite Index it more than doubled its level from October 2014 to June 2015, only to collapse by more than 40% in two months.
“We need fiscal reform and then hopefully real big economic reform,” Eva Lee, head of Greater China equities at UBS Global Wealth Management in Hong Kong, told Bloomberg Television. “By the end of this year, if we still don’t have major measures, we will probably end up at this level.”
China’s offshore yuan recovered from losses earlier in the session as the onshore rate, which had been stagnant for five sessions, traded 0.5% lower at 7.0558 per dollar in a post-holiday recovery move. Yields on the nation’s benchmark bonds initially rose seven basis points before narrowing to 2.20%.
–With assistance from Tian Chen, John Cheng, Sangmi Cha, April Ma, and Joanna Ossinger.
(Recast throughout.)
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