After the seven-day Golden Week national holiday break, China’s Shanghai Composite Stock Index on Tuesday opened nearly 10% higher; however, this gain quickly slipped to slightly less than 4.6% by the end of the trading day after a press briefing hosted by a department of the central government began at 10am failed to announced addition stimulus policies. Hong Kong’s Heng Seng Index, which fell by 9.41%, was also affected.
In the week before the national holiday, China’s stock market witnessed a steep rise of over 15% after the country’s central bank, the People’s Bank of China (PBoC), rolled out its monetary stimulus package, which included a lowering of key policy rates and the bank reserve ratio, a special swap facility allowing securities firms, funds and insurers access to liquidity from the central bank to buy equities, and a re-lending facility for stock buybacks for listed companies and major shareholders.
China’s stock markets have been in a downturn since 2022, and many foreign institutional investors remain underweight on Chinese stocks. However, the recent monetary stimulus package has brought optimism to investors whose portfolios have a China exposure.
With China stock markets suspended during the national holiday, their pre-holiday optimism was reflected in Hong Kong and US markets, where many stock prices posted double-digit growth.
This momentum had also fuelled investor expectations that there would be a companion fiscal stimulus package rolled out after the holiday with an eye to creating synergy for the economy. As well, an official announcement during the holiday stating that China’s National Development and Reform Commission would hold a special press briefing and media Q&A session on how to support the economy, had reinforced such expectations.
However, in the press briefing this morning, officials did not deliver on investor expectations of a plan for direct fiscal stimulus. The majority of the speeches by officials instead focussed on their conviction that existing support schemes, such as the continuation of ultra-long sovereign bond issuance and the absorption of housing stocks, were already having an effect.
The lack of a spending plan puts a question mark over how long the current momentum in China’s stock markets can be sustained, and whether the government’s economic growth target of 5% GDP can be met.