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Chinese stocks ended a three-day winning streak after the country’s prime minister’s pledge to provide “stronger” state support for the market failed to translate into concrete measures to support stock prices.
The benchmark CSI300 index, made up of listed stocks in Shanghai and Shenzhen, closed 0.3% lower on Friday after gaining about 4% in the past three sessions, while Hong Kong’s Hang Seng China Enterprises Index was down 2%. It fell.
Stock prices in China and Hong Kong, which have lagged far behind their global peers since July, have fallen sharply as the country’s Premier Li Qiang called for “stronger and more effective measures to stabilize markets and boost confidence.” In response, there was a rebound earlier this week.
But traders and strategists said the resulting boost in sentiment had receded because there was no solid evidence that authorities were taking meaningful action consistent with Li’s claims.
“There’s a bit of game theory at work,” said Mohamed Apabay, head of Asia trade strategy at Citigroup. “When policymakers make announcements, markets can rebound in anticipation of those measures, and there can be pressure from policymakers to do something bigger. To prompt serious policy action. is likely to require a larger and more violent decline.
“Currently, those who purchased [Chinese equities] “We may be forced to sell again in the past three days,” he added. “I’m probably the least bearish I’ve been in the last three years, but it’s not that time yet.”
Another factor contributing to the decline was Morgan Stanley strategists’ downward revision of their 12-month forecast for the MSCI China Index of global Chinese-listed companies from 60 to 53, which is in line with the index’s closing level on Thursday. That’s because it beat expectations for a big jump by other Wall Street investment banks. this year.
Global investors’ appetite for Chinese stocks has been severely tested since July. Leaders’ pledges for greater economic policy support have been undone by a series of defaults in the real estate sector, draining almost all the foreign capital flowing into China’s stock market. Last year it flowed backwards.
Morgan Stanley strategists say the mountain of unresolved debt facing Chinese developers, an aging population, declining consumer prices, and a “complex, multipolar global landscape” will likely cause Chinese stock valuations to “become weaker going forward.” “It is likely that the market will remain at a relatively low level.”
This downward revision to the outlook is in contrast to other large financial institutions, many of which are embarking on a strong rally heading into the Chinese market in 2024. Goldman Sachs expects the MSCI China gauge to end the year at 63, up about 20% from current levels. .
Friday’s losses followed a move by U.S. lawmakers on Thursday to introduce legislation that would block some Chinese biotech companies from contracting with the U.S. federal government.
The biggest losers in Hong Kong markets on Friday were the bill-listed companies Wuxi Biologics and Wuxi AppTec, which fell about 18% and 16%, respectively.