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Chinese stocks experienced a slowdown in their rally as investors began to question the potency of Beijing’s recent stimulus efforts in revitalizing the ailing economy. The CSI 300 Index, initially surging, gained 0.5% as of 1:39 p.m. local time, significantly paring down its earlier gains. The Hang Seng China Enterprises Index, which had risen by over 3%, was up by 1.1%, though it remained on track to halt a four-day losing streak.
At the market’s opening, stocks surged in response to the government’s fresh measures aimed at fostering economic growth, including an unusual increase in the budget deficit ratio and President Xi Jinping’s unprecedented visit to the central bank. Nevertheless, the waning momentum throughout the day indicated lingering skepticism. Prior interventions in the market, such as stock purchases by the sovereign wealth fund, had proved insufficient in stemming the market decline.
The nation’s legislature approved a plan to elevate the fiscal deficit ratio for 2023 to around 3.8% of the gross domestic product, up from the 3% set in March. This includes the issuance of additional sovereign debt amounting to 1 trillion yuan ($137 billion) in the fourth quarter to support disaster relief and construction efforts.
Willer Chen, a senior research analyst at Forsyth Barr Asia Ltd., noted that given the market’s current “super-depressed level,” the recent support measures might prompt some short-covering and trigger a rebound. However, the critical question remains about the sustainability of this rally, as support for the consumption recovery appears relatively limited.
The CSI 300 Index had previously wiped out all the gains made during its substantial reopening rally late last year, largely due to concerns about the health of the property sector, which led to a significant outflow of foreign investment from the onshore market.
Meanwhile, the Shanghai Composite Index approached a crucial 18-year trend-line, which had offered support during the US-China trade war and the pandemic’s darkest moments. This time, the trend line is located at around 2,900 points.
The focus now shifts to the longevity of this rally, as prior attempts to rescue the slumping stock market faltered in the face of an escalating property crisis. On Wednesday, developer Country Garden Holdings Co. faced default on a dollar bond for the first time ever, adding to the woes of the ailing industry.
In recent months, officials had slowed the pace of initial public offerings, restricted sales by some major shareholders, reduced the stamp duty on stock transactions, and eased regulations on margin trading.
While the latest economic data indicates progress toward Beijing’s 5% growth target for the year, the property sector continues to weigh down the overall economy.
Vey-Sern Ling, Managing Director at Union Bancaire Privee, pointed out that if the recent steps signal a greater willingness to expand the fiscal balance and redirect spending from local governments, it could have a positive impact over time. However, the sustainability of the rally depends on whether the stimulus measures go beyond the announcements made thus far.
