(Bloomberg) -- Chinese stocks suffered their biggest decline in six months as a lack of major policy support following the Third Plenum reinforced bearish sentiment.
The onshore benchmark CSI 300 Index closed 2.1% lower, following a 0.7% drop in the previous session. The declines have now erased gains seen last week, when signs of purchases by the “national team” of state funds amid the twice-a-decade political gathering propped up equity gauges.
The steep losses are likely to be a taste of what may come without state support in a market that has lost momentum amid China’s economic troubles and geopolitical risks. Investors had looked to the Third Plenum for a clearer policy roadmap to end the property crisis and revive consumption, but the details released so far have fallen short of expectations.
The equity decline “may be driven by fading national team support that propped up CSI 300 during the Plenum,” said Bloomberg Intelligence strategist Marvin Chen.
Combined turnover in eight exchange-traded funds known to be favored by the national team was lower than the past year’s daily average on Tuesday, suggesting that state funds likely remained on the sidelines for the day. The aggregate turnover in the cohort was 9.5 billion yuan, compared to nearly 40 billion yuan on Friday.
Read: China National Team ETFs Saw Record Inflows Amid Plenum (1)
China increased support for the economy with surprise interest-rate cuts Monday, but analysts say the impact will likely be limited to meaningfully bolster the economy. Data earlier this month showed China’s growth unexpectedly slowed to the worst pace in five quarters as consumer spending faltered.
“Investors tend to wait until there is a clear improvement,” said Steven Leung, executive director at UOB Kay Hian Hong Kong. “There has been no negative news in the market these two days, just investors believe such 10-basis point cut is not enough to trigger a turnaround in sentiment.”
In Hong Kong, the Hang Seng China Enterprises Index fell 1%.
--With assistance from Winnie Hsu and April Ma.
(Updates with additional comment, ETF turnover data.)
©2024 Bloomberg L.P.
