(Bloomberg) -- Chinese shares declined as authorities again left investors guessing on the specifics of a fiscal stimulus even as their key policy meeting vowed to boost consumption.
The CSI 300 onshore benchmark closed down 2.4%, its worst day in three weeks. Friday’s drop led to a weekly loss of 1%, snapping a two-week winning streak spurred by optimism about potent stimulus. A gauge of Hong Kong-listed Chinese stocks fell over 2%.
In global markets, commodities from iron ore to copper that depends heavily on Chinese demand also slumped. Meanwhile, benchmark yields on Chinese government bonds sank to a fresh record low after authorities vowed to ease monetary policy further.
The subdued appetite for risk assets shows investors are still awaiting detailed measures following repeated, broad pledges by top leaders in recent months to reinvigorate the economy. While some economists say that Beijing may be deliberately holding back policy details before tensions rise under the second Donald Trump presidency, the market’s reaction is a reminder of authorities’ challenges to restore investor confidence after several similar false dawns.
“More government borrowing, tolerance for a larger fiscal deficit and more monetary easing into next year have been the takeaways, but policy specifics remain lacking for now, which may still limit market gains,” according to Jun Rong Yeap, a market strategist at IG Asia Pte. “Chinese authorities have been stuck in a more reactionary policy mode, as the uncertainty of US tariff plans makes it difficult for policymakers to make any commitment just yet.”
Top officials led by President Xi Jinping pledged to raise China’s fiscal deficit target next year following the annual Central Economic Work Conference that ended Thursday. For only the second time in at least a decade, they made “lifting consumption vigorously” and stimulating overall domestic demand their top priority. Officials also vowed to strengthen the social safety net with broad promises to bolster health care and pensions.
The December meeting traditionally offers only broad strokes of policy focus and direction without revealing much detail. Specifics such as the growth target or the budget will be unveiled in March during the annual legislative sessions.
Behind the latest selloff was onshore investors’ decision to take profit after the recent rebound, given the likelihood of a three-month absence of fresh policy catalysts until the National People’s Congress’ annual meetings. Meanwhile, there won’t be further clarity about corporate earnings before the next reporting season starts in January.
Beijing is faced with rising challenges to impress investors after several episodes of policy disappointment. A rally that began in late September following a central bank-led stimulus blitz didn’t take long to lose steam due to a lack of follow-up measures. CSI 300 remains more than 7% down from an October peak after gaining over 30% in less than a month.
In March, “one should not be surprised to see fiscal deficit raised to 4% and above,” Hao Hong, chief economist for Grow Investment Group, told Bloomberg TV. “There will be specific guidance on special purpose treasury bond issuance and also ultra long treasury bond issuance. So all in all, the budget deficit in the broader sense will be over 10%.”
--With assistance from Winnie Hsu.
(Updates with latest price moves)
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