The recent rally in Chinese stocks quickly lost steam, reflecting investor skepticism about the government’s commitment to aggressive economic stimulus measures. Despite strong pronouncements of support from top officials, the CSI 300 index saw a modest decline after an initial surge. This cautious market sentiment underscores the waning confidence in Beijing’s ability to deliver meaningful economic support.
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Market Reaction Underlines Deep-Seated Doubts
The initial market euphoria following pronouncements of economic support from China’s top leaders was short-lived. The CSI 300 benchmark, comprising onshore equities, experienced a marginal drop of 0.2% following a brief 3.3% surge. Hong Kong-listed Chinese shares mirrored this trend with a 0.8% decline. Further emphasizing market apprehension, the yuan depreciated significantly, and 10-year government bond yields plummeted to unprecedented lows.
These market movements coincide with the commencement of the annual Central Economic Work Conference, a crucial platform for policymakers to unveil specific economic strategies. While anticipation exists for details on monetary and fiscal easing, investors remain wary due to previous instances of policy underdelivery. A notable example is the September stimulus package, which lacked substantial follow-through and ultimately failed to invigorate the market.
Investors Seek Concrete Action, Not Just Rhetoric
Market analysts suggest that investors are yearning for tangible action rather than mere verbal assurances. Wong Kok Hoong, head of institutional equities sales trading at Maybank Securities Pte, highlighted the need for concrete details, which are unlikely to emerge from the CEWC. He further noted a prevailing belief that significant stimulus measures might be postponed until after the upcoming presidential inauguration in the United States.
The Politburo’s recent commitment to a “moderately loose” monetary policy for 2025, the first significant shift since 2011, coupled with promises of “more proactive” fiscal policies and bolstering consumption, initially sparked market optimism. However, this optimism swiftly dissipated, indicating a deep-seated skepticism among investors.
Yifan Hu, chief investment officer for Greater China at UBS Global Wealth Management, emphasized the need for quantifiable data. Investors are seeking specific figures to justify investment decisions, beyond broad policy frameworks. This sentiment is echoed in the significant outflows observed in exchange-traded funds tracking Shanghai- and Shenzhen-listed stocks, totaling a substantial $41.7 billion.
Doubts Linger Over Stimulus Effectiveness
Despite the government’s pledges, concerns persist about the capacity of the Chinese economy to absorb increased liquidity. Shen Meng, a director at boutique investment bank Chanson & Co., pointed out the challenge of stimulating demand in the real economy. Without a corresponding increase in demand, the imbalance between supply and demand will likely persist, rendering stimulus efforts less effective. This underlying economic fragility further fuels investor skepticism, emphasizing the need for comprehensive and effective policy measures to restore market confidence.
In conclusion, the muted market response to China’s stimulus pledges underscores the prevailing skepticism among investors. The lack of concrete details and previous policy disappointments have contributed to a cautious outlook. Moving forward, the government needs to articulate specific measures and demonstrate a commitment to decisive action to regain investor trust and reignite sustainable economic growth.
