China's Stock Rally Stumbles Amid Stimulus Uncertainty

Chinese stocks experienced a significant downturn on Wednesday, October 9, 2024, snapping a 10-day winning streak. This sharp decline, the largest since the COVID-19 pandemic began, was primarily driven by investor disappointment over the lack of substantial new stimulus measures from Beijing, despite earlier expectations.

China's Stock Market Takes a Hit

Chinese equities, including those in Hong Kong, saw a sharp decline as investors opted to take profits after a strong rally. The absence of robust stimulus measures to invigorate the economy contributed to this reversal.

• The Shanghai Composite index plummeted 6.6% to 3,258.86 points.
• The blue-chip CSI300 index fell 7.1% to 3,955.98 points.
• Both indexes recorded their largest one-day losses since February 2020.
• The smaller Shenzhen index dropped 8.65%, and the ChiNext Composite index slumped 10.59%, marking its biggest one-day loss on record.

Turnover in the A-share market decreased to 2.96 trillion yuan ($419.04 billion) on Wednesday, down from a record 3.485 trillion yuan the previous day.

Disappointment Over Stimulus Measures

Investors were largely disappointed by the National Development and Reform Commission's (NDRC) press conference, which failed to provide further details on Beijing's anticipated massive stimulus package. This lack of concrete guidance led to a sell-off.

• Market analysts noted that the NDRC's announcements were "a bit disappointing" due to the absence of new stimulus or clear forward guidance.
• Despite the pullback, some analysts viewed it as a natural correction after a period of strong gains.

Sectoral Impact and Future Expectations

The downturn affected various sectors, with tourism and property companies experiencing significant losses.

• Tourism shares were among the top losers, as Golden Week holiday spending data indicated a failure to recover to pre-COVID levels.
• The CSI300 Real Estate index plunged 9.94%, reflecting ongoing concerns about the recovery of China's property market.
• Hong Kong's Hang Seng index ended 1.4% lower, with the Hang Seng Mainland Properties Index sliding 3.27% and technology shares shedding 1.17%.

Market participants are now keenly awaiting a fiscal stimulus announcement, with expectations ranging from 2-3 trillion yuan. The sentiment around Chinese assets remains heavily reliant on the delivery of a substantial stimulus package.

Broader Market Context

Chinese stocks have recently been seen as a potential hedge against fading U.S. exceptionalism, particularly given the divergence in market performance and technological advancements. While U.S. equities faced headwinds in early 2025, the Hang Seng Index saw significant gains. This divergence is partly attributed to China's rapid progress in AI and its strong track record in commercializing technology.

Beijing has also been taking steps to bolster its stock market, including encouraging state insurers and commercial insurance funds to increase investments in the A-share market. These measures aim to boost investor confidence and revive the lagging market.

Sources:

• China's stock rally hits speed bump as investors await more stimulus, Reuters.
• Chinese stocks offer hedge against fading U.S. exceptionalism: Taosha Wang, Reuters.
• China's stocks kick off Year of the Snake with trade war, AI rally, Reuters.
• China unveils plan to encourage insurance funds into stock markets, Reuters.