The market appears increasingly frustrated with the lack of decisive action from the country’s officials.
Chinese equities experienced significant declines once more on Thursday in a notable example of numerous stocks sharply falling. This downturn reflects a pervasive sentiment of “no news is bad news,” as investors grow increasingly uneasy about the insufficient details revealed by the country’s authorities concerning their newly announced economic stimulus plan. This triggered a continued decline from what was initially an explosive “stimulus rally.”
As has been the case in prior bearish periods for Chinese stocks, various sectors were impacted. U.S.-listed stocks of tech firms such as GDS Holdings and Tencent Holdings witnessed declines of approximately 2% and 4%, respectively, by the day’s end. In the prominent electric vehicle sector, Li Auto experienced a more pronounced drop, with its shares declining by 5% at the close of the U.S. market.
Insufficient Information and Tardiness?
While announcing a comprehensive stimulus plan is beneficial, it is crucial to provide concrete details. Although Chinese officials have disclosed some aspects of the program, these details have not sufficed to sustain the initial rally.
On Thursday, the situation persisted. During a press briefing, housing minister Ni Hong was expected to elaborate on the program, especially concerning the nation’s struggling real estate market. Despite announcing a near 100% increase in the loan quota for unfinished residential housing projects (reaching 4 trillion yuan, or $562 billion), the minister largely reiterated statements from other high-ranking government officials.
Another factor contributing to investor hesitation regarding Chinese equities is an anticipated dataset scheduled for release on Friday. The most closely monitored figure will be the third-quarter gross domestic product (GDP) growth. A Reuters poll suggests a 4.5% year-over-year increase is expected. If realized, it would be the lowest rate since the first quarter of 2023.
While many economies might view such a growth rate favorably, China holds a unique position. Previously, its quarterly growth rate was significantly higher as the country established itself as a global manufacturing hub. However, those impressive figures have declined, and this trend is expected to persist. For comparison, year-over-year GDP growth for the second quarter was 4.7%.
Anticipating Further Details
Typically, securities are traded based on future expectations rather than past performance. This is where the problem lies for Chinese stocks at present: without adequate details, even the most skilled stock analysts find it challenging to determine how the promised stimulus measures will impact the various economic sectors and companies seeking government support. Until more clarity emerges, it is advisable for investors to remain cautious and possibly refrain from taking action at this time.
