China stocks to remain volatile amid fiscal stimulus speculation- UBS

Chinese stocks are likely to experience increased volatility in the coming days as investors digest the government’s recent round of stimulus, UBS analysts said, while flagging potential risks from a disappointing stimulus package. 

China’s Shanghai Shenzhen CSI 300 and Shanghai Composite indexes clocked wild swings in recent sessions after the government announced plans to unlock more fiscal stimulus for the economy. But a lack of crucial details on the planned measures, especially their timing and scale- disappointed some investors. 

China’s benchmark indexes had surged to two-year highs earlier in October on optimism over more stimulus. But this rally now appeared to have fizzled out. 

“Investors remain highly sensitive to any policy signals, and stand ready to move quickly in response. If Beijing’s fiscal package falls short of expectations or if policymakers stay quiet in the coming weeks, we could see the market take another hit,” UBS analysts said.

They expect Beijing to release more information on the planned fiscal measures in the coming days, especially given that any planned increases in government spending will have to be approved by the National People’s Congress, which convenes later in October. 

China’s Ministry of Finance over the weekend outlined plans for a slew of fiscal measures, including local government bond issuances, increased fiscal spending and some supportive measures for the property market.

But investors were underwhelmed by a lack of explicit measures to support personal consumption- which has been a major point of weakness for the Chinese economy. Recent data also showed a sustained deflationary trend in the country.

The MoF also did not provide any details on how and when the planned fiscal measures will be implemented, raising more uncertainty. 

China has been grappling with about two years of sluggish economic growth, and is slated to potentially miss the government’s 5% annual gross domestic product target in 2024. 

Source: Investing.com