Economy and Markets React to China's Stimulus News with Skepticism

Economic Support Fizzles as Markets React

China's top leadership faces a critical issue with its economic stimulus: domestic investors are no longer swayed by hype. This week, China's stock markets slumped after reaching a two-year high. The CSI 300 Index, a benchmark for mainland stocks, fell by 7.1%, while indices in Shanghai and Shenzhen dropped by 6.6% and 8.7%, respectively.

Investor Sentiment Shapes Market Movements

About 70% of trading volume in China's markets is driven by over 200 million retail investors, making market movements a reflection of local sentiment. Following a stimulus announcement from the People's Bank of China in late September, the CSI 300 index soared nearly 20% higher year-to-date before the National Day holidays. But post-holiday trading revealed investors' skepticism.

Disappointment in the Chinese Commission

The expected press conference by China's National Development and Reform Commission on the first working day after the holidays disappointed many investors, as it failed to deliver further stimulation measures. This outcome impacted market sentiment negatively.

Divergence in Investor Optimism

Interestingly, while domestic investors expressed doubt, global market watchers showed optimism regarding China's resilience. Despite the domestic declines, analysts note that the commission is more responsible for implementation than funding initiatives, tempering expectations.

Positive Outlook Amid Losses

Some analysts are even interpreting this week's stock declines positively. For instance, Hong Kong's Hang Seng Index, reliant on institutional investors, dropped 1.4% after a significant 9.5% decrease the previous day, marking a 9.3% loss for the week.