(Bloomberg) — Losses in Chinese stocks deepened in Tuesday’s afternoon session, intensifying the debate over how much further the market’s stimulus-driven rally can go.
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The CSI 300 Index slid more than 2%, on track to erase all of Monday’s 1.9% advance. A gauge of Chinese shares listed in Hong Kong slumped more than 3%. The yuan also weakened.
Volatility has gripped the market in recent sessions as investors assess the sustainability of the rebound that began late last month, with the lack of clarity over the size of Beijing’s planned fiscal boost weighing on sentiment. Weak recent economic data, including figures on inflation and trade, has underscored the need for more stimulus.
“There’s a lot of skepticism that the stimulus announced so far just isn’t enough,” said Nathan Thooft, chief investment officer and senior portfolio manager at Manulife Investment Management. “We put on a tactical overweight to Chinese equities. We are not necessarily believers that this is a structural shift.”
Tuesday’s price action suggests that investors are unimpressed by a Caixin report that said China may raise 6 trillion yuan ($846 billion) from ultra-long special government bonds over three years as part of its efforts to boost the sputtering economy.
Following the central bank’s easing steps in late September, investors have been clamoring for the government to bolster fiscal spending. Officials promised new measures to support the property sector and hinted at greater government borrowing at a weekend briefing, without giving an amount.
The yuan slid as much as 0.6% to 7.1343 per dollar in the offshore market, the weakest level in about a month. The so-called China proxies — currencies that are affected by investor confidence on the country — also dropped. The Australian dollar, New Zealand dollar and South Korean won all weakened more than 0.2%.
Growing Divide
A divide is growing among global investors as the rally shows signs of cooling. Morgan Stanley Wealth Management warned that investors should steer clear of soaring Chinese equities as the stimulus measures won’t be enough to repair the struggling economy. Wells Fargo Investment Institute is also skeptical that the rebound will last given the depressed sentiment surrounding China’s consumers.
UBS Group AG still sees value, saying heightened retail investor interest should give stocks further upward momentum.
China’s export growth slowed more than expected in September, curbing a trade rebound that has been a bright spot for a weakening economy. Loan expansion also disappointed in a sign of still weak domestic demand.
“China’s signal on policy stimulus prompted us to go modestly overweight, especially given depressed valuations,” strategists at BlackRock Investment Institute including Wei Li wrote in a note. “Details have been scant, so we could change our view if future announcements disappoint.”
–With assistance from Sujata Rao and Tian Chen.
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