The market is expressing fatigue with the cautious approach of the country’s officials.
On Thursday, Chinese equities experienced significant declines, demonstrating a rapid response to economic uncertainty. In a situation where “no news is bad news,” investors are increasingly concerned about the lack of detailed information from the authorities regarding their recently announced economic stimulus program. The downturn followed the brief surge seen in the “stimulus rally.”
This decline impacted companies across various sectors, similar to previous bearish sessions for Chinese stocks. In the tech sector, GDS Holdings and Tencent Holdings saw the prices of their U.S.-listed stocks fall by approximately 2% and 4%, respectively. In the electric vehicle industry, Li Auto experienced a steeper decline, dropping by 5% at the close of the U.S. market.
Expectations of substantial details surrounding the announced economic plans remain unmet. Although Chinese officials have outlined some aspects of the stimulus initiative, the information provided has been insufficient to maintain market momentum.
On Thursday, the country’s housing minister, Ni Hong, conducted a press briefing. There were hopes that he would elaborate on the program, particularly in relation to the troubled real estate market. While the minister announced a near 100% increase in the loan quota for unfinished residential housing projects, raising it to 4 trillion yuan ($562 billion), most of his statements echoed previous declarations from other high-ranking government officials.
An additional factor contributing to the cautious investor sentiment is a forthcoming data set, set to be released on Friday. The most closely watched statistic will be the third-quarter gross domestic product (GDP) growth. According to a Reuters poll, expectations are set for a 4.5% increase year-over-year. If achieved, this would be the lowest growth rate since the first quarter of 2023.
While such a growth rate could be enviable for many economies, China is an exception. The country has previously achieved higher quarterly growth as it positioned itself as the global manufacturing hub. However, these impressive figures have cooled, with the trend expected to continue—year-over-year GDP growth for the second quarter was 4.7%.
Overall, securities are traded based on future expectations rather than past performance. The current predicament with Chinese stocks stems from the lack of detailed information, making it challenging for investors to assess how the promised stimulus measures will benefit various economic sectors and companies seeking government support. Until more clarity is provided, it may be prudent for investors to adopt a cautious approach.
