After the long National Day holiday in China, A-shares resumed trading on Tuesday, October 8th. The Shanghai Composite Index opened at 3674.4 points, a sharp increase of 10.12% compared to before the holiday break. The Shenzhen Component Index also opened strongly at 4450.37 points, with a rise of 10.76%. However, both indices quickly retreated, indicating that the Chinese stock market seems to have lost its rebound momentum.
China A-shares opened higher but soon turned lower, and Hong Kong stocks also experienced a significant decline. Analysts pointed out that the main reason for the downturn was that the Chinese authorities did not provide specific details on how to promote the economy, disappointing the market.
On Tuesday, China’s stock market resumed trading after a week-long holiday break and quickly hit a new high in two years. Within the first 20 minutes of trading, the turnover exceeded 1 trillion yuan. However, the benchmark indices quickly fell from their highs, leaving some investors lamenting that they were losing money right after buying.
The Hang Seng Index in Hong Kong also dropped by 8.60%. The index had seen significant gains in the previous trading days and had been one of the best-performing major markets.
The Chinese yuan recorded its largest drop in a year. Prices of iron ore and other industrial metals sensitive to China’s economic prospects also fluctuated lower from their morning highs.
On Tuesday, the director of China’s National Development and Reform Commission, Zheng Zhanjie, told reporters that the authorities are “confident” in achieving economic goals and will allocate 200 billion yuan from next year’s budget for investment projects and support for local governments.
Rong Ren Goh, a bond fund manager at Eastspring Investments, told Reuters that the market was hoping for some guidance on the scale of fiscal stimulus but found nothing new in Zheng Zhanjie’s comments. Goh mentioned that the market might enter a consolidation phase next, digesting the announced content which, although meaningful, did not meet market expectations entirely.
In Hong Kong, the Hang Seng Mainland Property Index (HSMPI) dropped by over 14%, marking one of the largest percentage declines in years. Analysts suggested that some technical reasons might be behind the sell-off.
Gary Ng, senior economist for Asia Pacific at Natixis, told Reuters, “There may be some profit-taking.” Ng added, “I don’t think there is any difference in market sentiment. It’s actually because one market has been closed for several days while the other has been trading.”
Despite Beijing’s shift towards economic stimulus policies sparking some investors’ interest in Chinese stocks, many large asset allocators and multinational corporations remain cautious about re-entering the Chinese market.
There is a deepening divide among financial experts on how to view the Chinese stock market. In fact, in recent years, every rebound in the Chinese stock market has ultimately ended in disappointment due to China’s economic performance. Many investors and analysts indicate that they are still unable to determine when China will emerge from its economic quagmire.
The upcoming U.S. election next month continues to be a concern for many businesses and investors on how it might alter U.S.-China relations. Foreign companies operating in China still face structural issues in the Chinese economy and geopolitical obstacles. Car manufacturers from the U.S., Europe, and Japan are shutting down their factories in China, Western tech companies and retailers have reduced thousands of Chinese employees, and manufacturers are shifting parts of their supply chains to other countries.