(Bloomberg) -- Chinese stocks fell as investors were seen reducing risk before the Ministry of Finance holds a policy briefing on Saturday, where it may add fresh fiscal stimulus.
The benchmark CSI 300 Index dropped 2.8%, bringing this week’s losses to 3.3%, the most since July. The Golden Dragon index of US-listed Chinese stocks declined 0.5% at 9:45 a.m. in New York. Hong Kong’s market was shut Friday for a holiday.
China’s equities have been whipsawed this week as traders digested a set of lackluster holiday-spending data, assessed messages from the state economic planner’s latest briefing, and pinned their optimism on Saturday’s press conference. There is plenty of concern the share rally that began in late September will unwind further if measures announced at the MOF briefing fall short of market expectations.
Friday’s decline was “generally because of risk-off sentiment going into the weekend as people remain cautious due to policy uncertainty,” said Billy Leung, an investment strategist at Global X Management in Sydney.
Investors and analysts are expecting China’s finance minister to announce as much as 2 trillion yuan ($283 billion) in fresh fiscal stimulus on Saturday, according to a majority of 23 market participants surveyed by Bloomberg. Most of them said they anticipate the funding would come in the form of government bonds.
“The magnitude of the stimulus does matter because market expectation has run high,” Vivian Lin Thurston, a fund manager at William Blair, said in a Bloomberg Television Interview. “More importantly, we are looking for how they are going to implement that stimulus given they have a lot unused fiscal policy earlier.”
Bank of America Corp. strategist Michael Hartnett recommended buying into any weakness in Chinese stocks, on the eve of the expected announcement of fresh fiscal stimulus.
“We buy any China dips,” the strategist wrote in a note to clients. He pointed to policy makers hinting that capital markets will “be used aggressively to boost domestic animal spirits and demand.”
This week’s decline in equities has sent some investors back to China’s corporate bond market in search of better returns. Yields on onshore bonds sold by Chinese companies fell about 10 basis points across different tenors and ratings on Friday morning, according to two credit traders.
The corporate bond rally is set to ease what would be the worst week of trading in nearly two years for the country’s junk debt market.
Despite Friday’s losses, the CSI 300 Index has still climbed more than 20% from its close on Sept. 23, the day before China’s central bank announced a broad package of monetary stimulus measures. That compares with a gain of just 1% for the MSCI All Country World Index.
The CSI 300 jumped 5.9% on Tuesday — capping a 10th straight session of gains as trading resumed after the Golden Week holiday. It then plunged more than 7% the following day, before closing 1.1% higher on Thursday.
“There is still limited clarity on the magnitude, nature and time frame of fiscal measures to come,” said Eli Lee, chief investment strategist at Bank of Singapore. “Beijing could be more inclined toward enabling a slower and more sustained bull market, rather than a short-lived bubble.”
--With assistance from Winnie Hsu, Abhishek Vishnoi, David Ingles, Yvonne Man, Yuling Yang, Qingqi She and April Ma.
(Updates with details in second and seventh paragraphs.)
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