Chinese stocks added to their advance from Monday as some investors saw merit in Beijing’s latest measures to invigorate markets, even as doubts remained over their long-term impact.
The CSI 300 Index was up more than 1% after the mid-day break Tuesday. That’s after a 1.2% gain in the previous session, when a 5.5% surge at the open cooled through the day. The moves follow weekend measures by authorities, which included the first cut in stamp duty since 2008 as well as curbs on share sales by major stakeholders.
The absence of runaway gains despite a series of market-boosting steps shows investor sentiment remains cautious. While the measures are expected to boost trading activity, the economy’s growth woes are making market players hesitant to bet big on a turnaround. As the strong opening rally in Chinese stocks faded on Monday, some investors said the nation needs to unleash a big stimulus package, like it did in 2008, to revive confidence.
READ: Markets Show China Needs Stimulus ‘Bazooka’ to Woo Investors
The measures are “technical in nature in terms of trying to improve liquidity for the stock market, and what’s needed is fiscal stimulus to boost the real economy,” said Xin-Yao Ng, investment manager of Asian equities at abrdn Asia Ltd. “The consensus among foreign investors is that a large stimulus from Beijing is required to improve consumer and enterprise confidence.”
Chinese equities have seen a miserable month given a slew of disappointing economic data, renewed concerns about the property sector and an unfolding crisis in the nation’s shadow banking system. Before the weekend policy boost, the CSI 300 Index had lost about 8%, on track for its worst month since October. US-domiciled hedge funds are net sellers of Chinese ADRs year-to-date, according to Morgan Stanley.
While stocks have rebounded from the lows plumbed last week, there’s a big question over the gains’ sustainability. Local media urged investors to be patient as the latest support measures work their way through the market, with Securities Times adding that investors shouldn’t be skeptical about the effectiveness of the measures.
Current policy moves are a “good start in terms of rebuilding the confidence but they are insufficient” in terms of setting market direction, Winnie Wu, China equity strategist at Bank of America Corp., said in a Bloomberg Television interview. “I think what investors are fundamentally concerned about is the economy. It is the fundamental problems in property, in LGFVs, private sector, employment.”
Fiscal Spending
Authorities have held back from adding big stimulus given their determination to shift away from the debt-fueled growth model. Officials from the nation’s top economic planner and the finance ministry on Monday reiterated pledges to strengthen policy support and speed up government spending in the second half of the year.
READ: China Pledges to Speed Up Fiscal Spending to Boost Economy
However, some others remain bullish despite the recent turbulence. UBS Global Wealth Management said China stocks remain their most preferred allocation in Asia citing the nation’s supportive policy moves.
Foreign investor were buying Chinese equities on a net basis on Tuesday after dumping them through most of the month. Outflows via the trading links with Hong Kong are poised to reach a record in August.
In Hong Kong, the Hang Seng gauge of Chinese shares advanced as much as 2.5%, boosted by gains in BYD Co. following solid earnings. The index closed up 1.2% in the previous session.
Other measures announced Sunday included a cut in deposit ratios for margin financing as well as a pledge by the China Securities Regulatory Commission to slow the pace of initial public offerings. Separately, stock exchanges asked some mutual funds to avoid selling equities on a net basis, Bloomberg News reported late on Monday, citing people who asked not to be identified discussing private information.
Beijing’s steps may help shore up investors’ sentiment to a certain degree and marginally encourage trading activities in the near-term, but their long-term impact will be limited, Morgan Stanley analysts including Laura Wang and Fran Chen wrote in an Aug. 28 note.
--With assistance from Charlotte Yang, Abhishek Vishnoi and David Ingles.
