Hesitation in implementing stimulus measures, coupled with profit-taking, reduced enthusiasm for certain stocks.
On Tuesday, the U.S. stock market experienced a decline, but this was minor compared to the downward trend of Chinese equities. Stocks on exchanges in both the U.S. and China faced significant losses.
Chinese companies listed in the U.S. experienced sharper declines compared to the S&P 500 index, which dropped by 0.8%. This was observed across various industries; for example, tech giant Baidu fell by over 5%, data center operator GDS Holdings declined by more than 5%, and fast-food restaurant operator Yum China Holdings decreased by nearly 6%.
In particular, these declines were disheartening given the recent rally in Chinese stocks at the end of September and the beginning of October. This rally was fueled by the Chinese government’s announcement of a comprehensive economic stimulus program, which initially encouraged investors to purchase stocks in these companies.
However, there has been minimal progress in rolling out the announced measures, and the government has been slow to provide detailed financial figures for many of these initiatives. Assessing the potential impact of such a stimulus program is challenging without clear information about its inputs.
Additionally, there is growing concern that the stimulus, regardless of its extent, might not suffice to fully rejuvenate China’s substantial economy. Growth in gross domestic product (GDP) has not matched the levels of previous years, indicating that affluent Chinese consumers may be habitually reducing their spending, a trend likely difficult to reverse.
When stock declines occur across multiple sectors, it suggests investors are concerned about broad economic challenges. Despite China’s eagerness to adopt technology, its tech sector, including companies like Baidu and GDS, has been affected by the recent declines.
Finally, profit-taking by investors capitalizing on the peak of the rally appears to be another contributing factor. This is typical when stocks experience rapid increases; investors who purchased at lower prices are often tempted to secure quick profits before moving on to other promising opportunities.
For those interested in Chinese stocks, the focus should now be on assessing intrinsic business value and core fundamentals. There remains uncertainty about how each stimulus measure will impact individual sectors and companies, and there is a possibility that the anticipated high-level support may not materialize as expected.
