(Bloomberg) -- Chinese stocks in Hong Kong declined after a high-profile legislative meeting let down some investors who had been hoping for large-scale stimulus to revive domestic demand and combat deflation.
The Hang Seng China Enterprises Index lost as much as 2.9% before paring some of its losses, with property and consumer-related shares among the biggest losers. The CSI 300 Index was volatile, reversing an earlier loss of 1.4% to end the day 0.7% higher. A Bloomberg Intelligence gauge of Chinese developer shares briefly tumbled more than 6%.
The mixed reactions came as investors digested Beijing’s latest stimulus package, which relieved some of the debt burden on local governments but lacked the sweeping fiscal support many investors had hoped for. The results proved somewhat anti-climactic given the heightened policy expectations ahead of the meeting. Donald Trump’s election victory, which could lead to higher tariffs on China, has also added to the uncertainty over China’s economy.
Economic data released over the weekend increased the sense of urgency for those who think Beijing needs to do more to encourage growth. Consumer price inflation remained close to zero and factory-gate prices continued to fall. UBS lowered its 2025 growth forecast for China following Trump’s election, telling investors it expected the economy to expand “around 4%” in 2025 and at a “considerably lower” pace in 2026.
“With perceived emphasis on stabilization rather than stimulus, and no measures to facilitate bank recapitalization and/or boost consumption, we think this will come as a disappointment for stock investors, even though the headline debt-swap numbers were ahead of expectations,” Nomura Holdings Inc. strategists led by Chetan Seth wrote in a note.
Overseas companies are pulling their money out of China as the growth outlook turns gloomier. Foreign direct investment slid almost $13 billion in the first nine months of the year, a sign that some investors are still pessimistic even as Beijing rolls out stimulus measures aimed at stabilizing growth.
Some market watchers say China is likely preserving policy room to prepare for an unfavorable trade environment once Trump takes office. The US president-elect has threatened 60% tariffs on Chinese goods. At a Friday briefing following the Standing Committee meeting of the National People’s Congress, Finance Minister Lan Fo’an promised “more forceful” fiscal policy next year.
“The early morning weakness stemmed from the underwhelming stimulus and debt swap idea, but what it reinforced is also the collective urgency authorities have regarding their slumbering economy and the double whammy of potential tariff 2.0.,” said Derek Tay, head of investments at Kamet Capital Partners. “I’m encouraged by the paring of losses, and investing is about uncovering value amidst the noise. Given the spike in US risk assets since last Wednesday, the valuation gap is even more enticing than before.”
The State Council, China’s cabinet, on Friday vowed to ramp up financial support for industries to promote stable foreign trade growth. Policy hopes may also rise once again ahead of China’s annual Central Economic Work Conference in December, where top leaders lay down priorities for economic policy for the coming year and sets targets for gross domestic product growth, the fiscal deficit and inflation.
“I do feel that there is a belief and in some sense that maybe they’re holding back, maybe they’re waiting for the Trump administration to start,” Andy Maynard, managing director and head of equities for China Renaissance Securities, said on Bloomberg TV, referring to Chinese policymakers.
--With assistance from Winnie Hsu, Fran Wang and John Cheng.
©2024 Bloomberg L.P.
