China’s stimulus letdown hits markets
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The news: China’s stock market rally fizzled after a press conference by the National Development and Reform Commission on Tuesday disappointed expectations for more fiscal stimulus.
The numbers: Investors, spurred by prior central bank actions and policy signals, had pushed the blue-chip CSI 300 index up 25% before the holiday, anticipating significant economic support.
As the market reopened from the onshore holiday, the index soared 10% before scaling back to a 5.9% rise after the press conference offered little new, underwhelming investors.
Hong Kong’s Hang Seng Index, which has seen its steepest rally in a generation over recent weeks, dropped 9.4%, its worst day since 2008. The Hang Seng Tech index tumbled 12.8%.
The context: Investors and economists are cautious despite the recent strong official signals and easier monetary policy, as they wait to see if China will back that up with fiscal support to drive an economic recovery and sustain growth.
The disappointment spread into broader markets like those for oil, metals and other China-exposed assets. The Australian dollar fell 0.5%, the yuan neared its largest drop in 10 months, Brent crude fell 4% to USD77.41 ($114.84), and industrial metal prices, including iron ore, also declined. Falls in European miners and luxury sector stocks pushed shares in the continent to two-week lows.
What they said: “A great deal of hope has been built into the strong rally in recent weeks and we now need to see additional government policy action to support the uptrend." Vasu Menon, managing director of investment strategy at OCBC in Singapore told Reuters.
"Ultimately for the rally to be sustainable, we need to see more fiscal policy and more measures to support the economy and the property market.”
The sources: Reuters, The Financial Times
