China's sizzling stocks rally cools as markets wait on stimulus

SHANGHAI (Reuters) -China's stock markets roared back from a week-long break and climbed to their highest levels in more than two years at the open, but lost steam after officials failed to inspire confidence in stimulus plans intended to turnaround a sputtering economy.

Hong Kong's Hang Seng index , catapulted to be the top-performing major market this year by its sharpest weeks-long rally in a generation , closed 9.4% lower - its heaviest fall since 2008.

Economic planner chairman Zheng Shanjie told reporters China was "fully confident" of achieving economic targets for 2024 and would pull forward 200 billion yuan from next year's budget to spend on investment projects and support local governments.

But his failure to detail sufficiently big or new measures rekindled market doubts about Beijing's commitment to ensuring the world's second-largest economy can climb out of its most serious slump since the global pandemic and reach 5% growth.

The Shanghai Composite closed 4.6% higher while the blue-chip CSI300 rose 5.9% - big moves but well off gains of more than 10% seen early in a rollercoaster day where turnover hit a record 3.45 trillion yuan ($489 billion).

"Ultimately for the rally to be sustainable, we need to see more fiscal policy and more measures to support the economy and the property market," said Vasu Menon, managing director of investment strategy at OCBC in Singapore.

"A great deal of hope has been built into the strong rally in recent weeks and we now need to see additional government policy action to support the uptrend."

The fallout spread to China-exposed assets around the world. The Australian dollar fell 0.5% and the yuan headed for its sharpest drop in ten months. [MKTS/GLOB][FRX/]

Iron ore and other industrial metal prices slid, with the steel ingredient down 5% in Dalian and London copper hitting its lowest in a week.[IRONORE/][MET/L]

Global miners Rio Tinto (NYSE:RIO ) and BHP fell in Australia and miners and luxury stocks dropped in Europe.

FRENZY

Before the Golden Week break, China announced the most aggressive stimulus measures since the pandemic and the CSI300 gained 25% over five sessions.

Flows on Tuesday were directed at broad index funds and pockets of the market expected to benefit from government largesse.

By midday nearly 20 exchange-traded funds traded at a premium of more than 20% to the value of their assets, as funds rushed in faster than they could be rerouted to buy shares.

The record turnover shows "massive profit taking as well as fresh money inflow", said Wen Hao, a veteran investor in the eastern Hangzhou city.

"It's still early stage of the bull market, and still a good time to buy stocks," he said, recommending small-caps that typically outperform blue-chips when the market is hot.

On Tuesday small companies outshone the large firms and the biggest gainers were tech hardware makers, brokers, health care companies and builders. Some of the frothiest winners from last week turned top losers in Hong Kong.

The CSI semiconductor sub-index surged 17% and a sub-index of brokers was up 10.6%. Thematic indexes from biotechnology to defence and electric vehicles rose more than 11%.

In Hong Kong, however, mainland property developers fell 15.5%, the biggest one-day percentage drop on record. Analysts said the selling reflected profit taking after a week of gains and balancing mainland moves, rather than a mood shift.

"The returns between Hong Kong and Chinese stocks remain largely parallel," said Sean Teo, sales trader at Saxo in Singapore.



"This underperformance may be due to some investors reallocating their funds from Hong Kong to Chinese markets, where government stimulus is more direct."

($1 = 7.0562 Chinese yuan renminbi)

Source: Investing.com