(Bloomberg) -- A familiar sense of skepticism has reemerged in Chinese markets, with a fast fading stock rally signaling low expectations for a key policy meeting to deliver the kind of forceful growth stimulus pledged by authorities.
The CSI 300 onshore equities benchmark dropped 0.2% Wednesday. It rallied as much as 3.3% in the previous session before erasing most of its gains, after China’s top leaders used the strongest language in years to signal support for a weakening economy. A gauge of Hong Kong-listed Chinese shares fell 0.8% Wednesday.
Meanwhile, the yuan slid the most in a week while yields on 10-year government bonds sank to a fresh record low.
The cautious tone comes as Chinese leaders kick off the annual Central Economic Work Conference, where more details may emerge about efforts to ramp up monetary and fiscal easing as pledged earlier this week. Investors, especially those in Chinese stocks, have become increasingly hard to please after several episodes of policy disappointment, including a late September stimulus blitz that wasn’t followed up by potent measures.
“At this point investors probably would need some concrete details and these would probably not be forthcoming after the CEWC,” said Wong Kok Hoong, head of institutional equities sales trading at Maybank Securities Pte. “Some market watchers actually continue to hold on to the belief that any forceful stimulus may only come after 20 Jan, and policymakers are not in a hurry to act now,” Wong said, referring to President-elect Donald Trump’s inauguration day.
The Communist Party’s top decision-making body vowed Monday to embrace a “moderately loose” strategy for monetary policy in 2025, marking its first major shift in stance since 2011. The Politburo also said authorities will take a “more proactive” approach on fiscal policy, stabilizing property and stock markets, while promising to “forcefully lift consumption.”
The Politburo’s statement initially triggered sharp gains in Chinese shares, including those in Hong Kong and the US, but the momentum weakened quickly after the mainland market had its first chance to react on Tuesday.
Foreign investors remain in the hunt for the actual size of any addition to Beijing’s stimulus package, according to Yifan Hu, chief investment officer for Greater China at UBS Global Wealth Management. “So give me the number, although you have the framework, but feed me the numbers to put the money in,” she told Bloomberg TV.
In a sign of the deep-rooted skepticism among China’s retail investors, exchange-traded funds tracking Shanghai- and Shenzhen-listed stocks saw combined outflows of 302 billion yuan ($41.7 billion) on Tuesday, according to data compiled by Bloomberg. Among them, the Huatai-Pinebridge CSI 300 ETF saw outflows of 2 billion yuan, the most in nearly three weeks.
“While the Politburo readout provided a boost to sentiment given expectations of aggressive policy loosening next year, the market is also questioning whether there is still room to absorb the increased liquidity,” said Shen Meng, a director at boutique investment bank Chanson & Co. “In the absence of demand in the real economy, it will be difficult to break the deadlock of imbalance between supply and demand.”
--With assistance from Abhishek Vishnoi, April Ma and Wenjin Lv.
(Updates with closing stock levels, yuan and bond moves.)
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