Chinese Stocks Show Volatility as Investors Monitor China Markets for Fiscal Stimulus Insights

Chinese Stocks Respond to Fiscal Stimulus Uncertainty

Chinese stocks fluctuated in early Monday trading as investors assessed the potential impact of the support measures announced by the finance ministry over the weekend.

The CSI 300 Index swung between a gain of 1.7% and a loss of 0.5%. It capped its worst week since late July on Friday. A Bloomberg Intelligence gauge of Chinese developers was little changed after rallying more than 4%.

The swings underscore caution as traders await more details on the fiscal measures. Finance Minister Lan Fo’an promised new steps to support the property sector and hinted at greater government borrowing during a Saturday briefing, but fell short of providing a headline dollar figure. Revved-up fiscal spending is seen as key to sustaining the stock market rally ignited by the central bank’s stimulus blitz in late September.

“There’s going to be consolidation and pullback,” said Wendy Liu, chief Asia and China equity strategist at JPMorgan Chase & Co. “The structural stimulus will positively affect long-only investors looking at a 2-3 year view. Short-term, it is not as satisfying.”

Economic Indicators and Policy Support

An index of Chinese shares listed in Hong Kong fell more than 2%, reversing an earlier gain. Data on Sunday revealed China’s deflationary problems became more entrenched in September, with consumer prices remaining weak and factory gate prices continuing to fall.

Meanwhile, officials from various Chinese departments initiated a briefing on Monday to discuss increasing policy support for businesses.

Potential Market Dynamics and Future Outlook

Local governments will be allowed to use special bonds to buy unsold homes, Lan and his deputies said at the Saturday briefing, without disclosing an amount. Lan hinted at the room for issuing more sovereign bonds and committed to relieving local governments' debt burdens, predicting a possible rare budget revision in upcoming weeks.

Prior to the weekend, investors and analysts surveyed by Bloomberg had expected China to deploy up to 2 trillion yuan ($283 billion) in fresh fiscal stimulus on Saturday, including potential subsidies, consumption vouchers, and financial support for families with children.

Market volatility had risen ahead of the Ministry of Finance briefing, with the CSI 300 Index sliding 3.3% last week. As the rally stalls, concern may grow that the latest rebound may be yet another false dawn. The market has been caught in a cycle of gains and losses as Beijing’s piecemeal approach to stimulus resulted in only brief rebounds.

“I suspect November’s US election and the FOMC could delay large stimulus to December or later; investors might stay away before that and the third-quarter results, so upside could be a bit capped for now,” said Xin-Yao Ng, an investment director at abrdn Asia Ltd.