The much-anticipated announcement of plans to stimulate China’s flagging economy failed to meet investor expectations, causing a short-lived stock market rally.
After the Golden Week holiday, shares surged by over 10% as trading resumed. However, the excitement was fleeting. The Shanghai Composite Index in mainland China ended the day 4.6% higher, while the Hang Seng in Hong Kong fell by 9.4% following a press conference by China’s economic planners. Investors were left seeking more specifics on how the government plans to stimulate economic growth.
This disappointment came after a surge in investor confidence last week, following Beijing’s initial announcement of stimulus measures. Investors poured $5.2 billion in new assets into Chinese markets, a stark contrast to the average weekly outflow of $83 million in 2024. This marked the largest one-day rally in Chinese stocks since 2008, with funds like Blackrock’s iShares China Large-Cap ETF FXI and KraneShares CSI China Internet ETF KWEB seeing significant inflows.
However, the lack of concrete details in the government’s plans led to a sharp reversal. In pre-market trading on Tuesday, FXI was down 8.37%, KWEB fell by 10.14%, iShares MSCI China ETF MCHI dropped by 10.59%, and Franklin FTSE China ETF FLCH declined 9.26%.
The recent surge in Chinese stocks had been described as a “fast and furious rally,” with the MSCI China Index climbing over 35% between Sep. 24 and Oct. 7. This rally outpaced other major global markets and more than doubled the year-to-date gains of the S&P 500. The rise was fueled by aggressive monetary easing policies and renewed government efforts to stabilize the property sector.
However, the Chinese government’s recent announcement of a 200 billion yuan ($28 billion) stimulus aimed at local investment projects fell short of market expectations. This led to a sharp sell-off in major tech stocks.
Despite the underwhelming response, officials remain confident in achieving economic and social development goals, as stated by Zheng Shanjie, chairman of the National Development and Reform Commission. The government’s commitment to stabilizing the economy remains, but it remains to be seen whether these plans will be enough to revitalize investor confidence and fuel sustainable growth in the long term.
