Chinese Stocks Plunge as Hopes for Major Stimulus Fizzle Out

Chinese stocks had a notable rebound, but it stalled as investors got fed up with the government’s lack of concrete stimulus plans after the Golden Week holiday.

On Tuesday’s stock market opened up strongly, with the Shanghai Composite Index gaining more than 10% in the first hour of trading.

Though the National Development and Reform Commission’s (NDRC) press conference fell short of expectations, the gains were only temporary.

Chinese shares soared to two-year highs as trade resumed after a week-long holiday and investors bet on stimulus supporting the economy https://t.co/238mrWWysv pic.twitter.com/0ALE7qIloa

— Reuters (@Reuters) October 8, 2024

The announcement didn’t offer much fresh information, but investors were still waiting for concrete steps to support China’s faltering economy.

Hong Kong’s Hang Seng Index suffered a steep 9.4% loss by the conclusion of the day, while the Shanghai Composite Index had gained 4.6%.

Zheng Shanjie, the head of the NDRC, expressed optimism that China would achieve its annual economic and social targets.

That being said, he conceded that the nation’s economy is coming under more and more negative pressure. Many investors expected more significant action, even if it was announced that 200 billion yuan ($28 billion) would be allotted to spending and investment projects by the end of the year.

China’s economy faces increasing downward pressure while the country sees a "complex" external environment, Zheng Shanjie, Chairman of the National Development and Reform Commission says in a briefing https://t.co/3BQN2v3uOR pic.twitter.com/VvrVBVbxCo

— Bloomberg TV (@BloombergTV) October 8, 2024

The market truly expected more,” stated Alicia Garcia-Herrero, head economist at investment bank Natixis for the Asia Pacific area.

She warned that the absence of fresh stimulus plans would cause more market corrections, particularly if there is insufficient information about consumer spending during Golden Week.

Following two weeks of soaring stock prices due to promises for stimulus, investors were looking for more specific plans to deal with China’s economic problems, such as the country’s poor domestic demand, decreasing consumption, and struggling real estate market.

Some commentators argue that deeper reforms are necessary to put China on a path to profitable growth, even in light of the many initiatives that have lately been implemented, such as financial handouts for low-income individuals and support for the real estate industry.

China’s stock euphoria fades as investors reassess their bets on more stimulus https://t.co/2OlR0B9Lm1

— Bloomberg (@business) October 8, 2024

On Wednesday, because of extra decreases, the CSI300 Index, which monitors the largest equities in China, fell 5.4% and the Shanghai Composite Index fell 5.3%.

The fact that these losses beat most of the week’s gains suggests that the market is cooling off following its recent spike.

The Hang Seng Index for Hong Kong suffered more losses as well, plunging 1.4%, extending its negative trajectory following Tuesday’s sharp decline.

In recent weeks, the market experienced its major surge in more than a decade, but worries are growing that the rises may have come too fast and that the absence of further stimulus may impede future development.

The rally in Chinese stocks lost momentum after the National Development and Reform Commission, the country's top economic planner, held back in unleashing any more major stimulus at a press briefing. @DavidInglesTV reports https://t.co/XcsGafIQ8X pic.twitter.com/thxBWjhxpQ

— Bloomberg TV (@BloombergTV) October 8, 2024

Despite the disappointment the NDRC’s comments caused, economists like Nori Chiou, the investment director at White Oak Capital, claimed that the market’s pullback was inevitable following such a significant gain.

Currently, investors are expecting a bigger monetary stimulus package; some believe it to be between two and three trillion yuan. Market mood may drop if such actions are not announced quickly.

Adding to these worries was the fact that China’s Golden Week vacation, a significant purchasing window, did not result in the expected increase in consumer spending, which further lowered market sentiment.

China’s economic recovery still has a long way to go as long as the property industry continues to struggle and consumption is still low.

A lot of investors are optimistic that additional government efforts will bring about market stabilization in the upcoming months, notwithstanding the current volatility. The demand for significant economic stimulus, however, is still growing on China’s officials.