(Bloomberg) -- Chinese stocks capped their best day in over four years on Tuesday after authorities rolled out the latest stimulus bazooka. But few think the party will last.
Market watchers expect gains in the world’s second-largest equity market to be fleeting as focus will soon revert to Beijing’s long-standing problems: weak consumption, falling prices and an entrenched property crisis — challenges that the latest round of measures won’t be able to fix.
“A lot of the issues are demand or confidence driven,” said Nigel Peh, a portfolio manager at Timefolio Asset Management Co. “The effectiveness of these government measures remains yet to be seen.”
Chinese equities have been trapped in a start-stop cycle of gains and losses for most of this year as Beijing’s piecemeal approach to reviving the market produced only brief rallies. Even die-hard fans are growing impatient and there’s a risk that they may throw in the towel if Tuesday’s measures fail to reverse the downward trend.
The latest stimulus measures set off a wave of buying on Tuesday which propelled the CSI 300 Index to a 4.3% jump — its biggest one-day advance since July 2020 — at the close. The Hang Seng China Enterprises Index surged more than 5% to round off its best day in over a year.
The steps announced included moves to boost bank lending, a reduction in borrowing costs on as much as $5.3 trillion in mortgages, and a measure to allow funds and brokers to tap the central bank’s funding to purchase equities. Authorities are also weighing a stock stabilization fund.
“Market participants would like to see more, perhaps other moves to boost consumption, and the general consensus seemed to be those would not be forthcoming until after the US elections” said Wong Kok Hoong, the head of institutional equities sales trading at Maybank Securities Pte. in Singapore. “Hong Kong stocks rose but we will have to see if those gains can hold.”
For long-time market watchers, the narrative is all too familiar.
In February, shares rebounded more than 10% from the month’s low after Beijing appointed Wu Qing as the head of its securities regulator in a surprise move that some said may foreshadow more forceful measures to end the rout.
Two months later, Wu unveiled a package of nine-point reform measures that were considered to be the most forceful seen in a decade. Traders initially applauded the effort, pushing the CSI 300 Index up by about 6%. But as growth continued to disappoint and confidence kept sliding, the benchmark gauge quickly resumed its declines.
For now, most money managers expect at least a temporary boost from the latest round of stimulus measures.
“I do see short term positive market reaction as there is real liquidity impact and potential buying momentum to support Chinese equities,” said Britney Lam, head of long-short equities at Magellan Investments Holding Ltd. “However, the fundamental deflationary pressures and property downcycle remains and will continue to weigh on consumption and hence economic growth.”
--With assistance from Winnie Hsu and John Cheng.
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