(Bloomberg) -- Chinese stocks declined at a pace unseen since the rout earlier this year, reigniting fears that the market is again headed for a freefall despite policy buffers put in place.
The CSI 300 Index closed down 0.6% Wednesday, taking its three-day loss to more than 3%, the most since Jan. 31. The Shanghai Composite Index briefly tumbled below the key 2,900 level.
Pessimism is dominant after hopes that the Third Plenum — which concluded last week — would offer new catalysts fell flat. While further details are expected in the upcoming Politburo meeting, expectations for a meaningful boost to stocks are low. The recent slide came as equity purchases by the so-called national team slowed somewhat from last week.
“There is some pessimism due to the fact that the Plenum did not provide many concrete reasons to be more upbeat,” said Chen Zunde, fund manager at Guangdong Fund Investment Co. “There is a bit of panic, but the selloff could also be largely associated with fund flows” including big mutual fund redemptions, he added.
China’s economy has struggled to gain traction with the property market mired in a crisis and consumers wary to spend. Geopolitical tensions ahead of the US presidential election is another headwind. Underscoring the dour sentiment, the amount of redemptions from stock-focused mutual funds was one of the largest since 2005 in the second quarter.
China’s sovereign wealth fund, known as the national team, has been pivotal in putting a floor under the stock market this year, including during last week’s Third Plenum. Wednesday’s moves suggest they may have been in action in the morning — helping to pare losses.
“It’s quite likely that the national team was behind the leg up in stocks in the morning session, as turnover in some of the large broad index ETFs is a key window to observe the moves of the sovereign fund,” said Li Xuetong, fund manager at Shenzhen Enjoy Investment Management Co. “Pessimism is prevalent in the market.”
For the day, turnover in eight ETFs known to be purchase targets of the national team reached 14.7 billion yuan ($2 billion), topping the previous session’s tally. It still pales when compared to last week’s actions, when it neared 40 billion yuan on Friday.
Traders fear that the market is trapped in a downward cycle, where rebounds barely last more than a few weeks. Any market-friendly measures to be released from the 24-man Politburo are likely to prove insufficient to drive a sustainable rebound, if history is a guide.
The CSI 300 Index is about 10% below where it was following the 2023 July Politburo, when a rare and bold slogan to “invigorate capital markets and boost investor confidence” offered only fleeting gains.
The pledge was deemed the strongest endorsement of markets by top leaders in at least a decade, and was supplemented with concrete polices including a stamp duty cut and short-selling restrictions. Chinese stocks’ poor performance over the past year shows the bar to rejuvenate markets this time around will be significantly higher.
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