China Stock Rally Loses Steam As Investor Optimism Subsides: 'Not Quite Enough To Satiate Lofty Expectations'

China stocks are moving lower on Wednesday as investors moderate expectations for a swift Chinese economic recovery bolstered by stimulus measures.

What To Know: China markets had been on a tear in recent weeks after China introduced its most aggressive stimulus measures since the pandemic and vowed to deploy "necessary fiscal spending" to meet its economic growth target of 5%.

The rally was buoyed further after measures were announced to allow for the refinancing of mortgages, giving home buyers immediate benefits from lower interest rates, as China attempts to revive an economy that has battled deflationary pressures and growth headwinds due to property declines and wavering consumer confidence.

Following a week-long holiday break, mainland Chinese stocks popped as they resumed trading on Tuesday before the stimulus-backed rally fizzled and stocks finished the day sharply lower. Weakness has continued into Wednesday after a meeting of China’s National Development and Reform Commission offered no significant stimulus details, per Reuters.

Economic planner chairman Zheng Shanjie reportedly told reporters that China remains “fully confident” it will reach its economic targets and will pull forward funds from next year’s budget to invest and support local governments.

Rong Ren, portfolio manager of Eastspring Investments in Singapore believes Zheng’s comments fell short of expectations.

“Markets were hoping to obtain some guidance on the size of fiscal stimulus,” the portfolio manager said. “It is likely we see markets consolidating and digesting what has already been announced, which arguably is meaningful, but not quite enough to satiate lofty expectations.”

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Hong Kong’s Hang Seng fell 1.38%, the Shanghai Composite dove 6.62% and the blue-chip CSI300 plunged 7.39% on Wednesday. The IShares MSCI China ETF MCHI was down 2.33% and the KraneShares CSI China Internet ETF KWEB was down 1.06%.

U.S.-listed Chinese stocks were also facing selling pressure at the time of writing. Alibaba Group Holding Ltd BABA shares were down 1.86% at $107.63, Baidu Inc BIDU shares were down 1.87% at $104.10, JD.com Inc JD shares were down 2.22% at $42.58 and PDD Holdings Inc PDD shares were down 2.46% at $141.26.

Some China-based EV names were also seeing weakness including NIO Inc NIO, which was down 1.74% at $6.13, and Li Auto Inc LI, which was down 3.28% at $27.13 at last check.

Reuters reported that investor attention is now shifting to a news conference scheduled for Saturday with China’s finance ministry. The conference is expected to focus on fiscal stimulus to boost the economy.

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