Chinese stocks volatile after Beijing lays out fiscal plans

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Chinese stocks were volatile on Monday after Beijing sought to reassure investors over the weekend about its plan to increase spending to boost the world’s second-largest economy.

The finance ministry on Saturday said it planned to recapitalise local governments and state banks and buy unsold property as part of its stimulus plans but held back from providing detailed figures.

Chinese investors, who kicked off a record stock market rally in late September after Beijing announced monetary stimulus, are waiting for the government to reveal its planned fiscal expenditure.

On Monday, mainland China’s CSI 300 benchmark was up 1.52 per cent by the noon break in volatile trade, with high-tech manufacturing groups such as Cambricon Technologies, CATL and BYD among those driving gains in the index.

But markets in Hong Kong declined slightly, with the benchmark Hang Seng index down 0.4 per cent while a sub-index of Chinese companies listed in the territory dropped 0.22 per cent.

“Market opinions clearly diverged after the Ministry of Finance briefing,” said Zhang Qi, analyst with Haitong Securities. But he said some investors were starting to venture back into the market after the rally faltered last week on uncertainty over the government’s stimulus plans.

Economists in the cautious camp said the finance ministry’s programmes would help provide a basis for a recovery, but they would need to see the details, including how much the government planned to spend and the programmes’ terms.

Others were more positive, believing that the government would make good on its promises in important meetings planned for the coming weeks, such as a session of the standing committee of the rubber-stamp parliament, the National People’s Congress, which can approve new government bond issuance.

Beijing has launched multiple incremental schemes over the past three years since the property sector collapsed, but none have managed to stabilise a deep fall in prices that is hitting household sentiment.

On Thursday, the People’s Bank of China began implementing a scheme to enable domestic financial companies to buy more stocks, the first central bank tool of its kind to shore up stock market liquidity.

The announcement of the tool in late September ignited a market rally that sent stock prices up more than 30 per cent before it cooled off last week.

The finance ministry briefing was followed by data on Sunday showing that deflationary pressures remained strong, one of the chief concerns for economists.

The weekend briefing sent mixed signals, said Winnie Wu, chief China equity strategist at the Bank of America Securities on Monday, and the market was now in “long-term greedy and short-term cautious” mode.

“While some investors may be disappointed, it seems to us that the policy pivoting point has occurred,” said Wu. “We should see continued policy momentum in the coming weeks, and potentially more fiscal stimulus and structural reforms in 2025.”

But Goldman Sachs economists said the finance ministry’s suggestion that it might spend Rmb2.3tn ($325bn) from previously approved bonds in the final quarter were positive for economic growth.

This led Goldman to upgrade its forecast for China’s economic growth this year to 4.9 per cent from 4.7 per cent, close to Beijing’s official 5 per cent target.