China demonstrated on Tuesday how to deflate an overzealous rally from both local and foreign investors who had tossed good sense aside over the weekend and Monday.
Having built up expectations for a significant spending stimulus announcement, global banks like Goldman Sachs and Citi issued various optimistic notes during the weekend and on Monday—only to be disappointed.
Aside from an unremarkable press briefing in the morning, nothing of substance was presented, effectively halting the stimulus narrative and damaging the credibility of banks, brokers, analysts, and others who had fueled hopes for a major announcement on the first trading day for Chinese markets after the week-long holiday.
“Show us the money” might be a transposed line from a well-known Tom Cruise movie, but on Tuesday in Asia, it encapsulated what investors wanted from the Chinese government—and what they did not receive.
Chinese markets began with a roar after a week-long holiday, with indices opening up 10% or more as mainland investors and some foreigners caught up with last week’s gains.
However, ominously, Hong Kong did not follow suit; the Hang Seng Index sagged as the lack of any substantial measures became evident following a much-anticipated briefing from one of China’s senior economic officials.
The early bounce in iron ore prices also faded, leading to a sharp decline that dragged down the share prices of local producers. The SGX price in Singapore peaked at $US115 a tonne on Tuesday before falling back to $US105.15 a tonne, down 5% from Monday and well below last Friday's close of $US110.75 a tonne.
The market's demands for stimulus details were, of course, a stretch—especially for the Chinese government and Communist Party, which are accustomed to doing things their own way without yielding to market or Western investor pressures.
When Zheng Shanjie, chairman of China’s National Development and Reform Commission, pledged a series of actions to bolster the economy during the highly anticipated press conference but failed to provide any specific figures, markets began to decline.
They fell steadily; by the close, Chinese markets remained up by around 4% to 4.5%, more than halving their early 10% gains as trading continued into the afternoon.
Hong Kong told a different story, continuing to sell off and closing down more than 9%, erasing all the gains from last week. The Hang Seng briefly tumbled more than 10%.
This decline in Hong Kong was particularly noteworthy—it had risen 9.3% last week while Chinese markets were closed. Tuesday’s slide served as a big thumbs-down to what was essentially a damp squib from the government led by President Xi.
Instead of announcing spending measures, China targeted brandy, imposing anti-dumping measures on imports of European brandy as a first round of punishment for the EU’s substantial tariffs on Chinese EV imports. Higher tariffs on other products, such as large vehicles, were also mentioned.
This news resulted in sharp declines for EU luxury goods companies like Kering and LVMH.
In Australia, the ASX 200 fell 0.35% after briefly opening higher, until the briefing in Beijing turned into a disappointment.
While Zheng's remarks did elaborate on some measures revealed from September 24 onwards by the People’s Bank of China and other government departments, they fell short of expectations. Zheng stated that the government would accelerate the issuance of special purpose bonds to local governments to support regional economic growth.
He mentioned that ultra-long special sovereign bonds, totaling 1 trillion yuan, had been fully deployed to fund local projects and pledged that China would continue to issue ultra-long special treasury bonds next year.
Additionally, the central government plans to release a 100 billion yuan ($US14.1 billion) investment plan for next year by the end of this month, ahead of schedule, according to another government official.
However, there was little additional detail and certainly no mention of a ‘bazooka’ sized spending figure intended to instill confidence in the markets, investors, and Chinese consumers.
Official media reported breathlessly on the initial sharp rise in Chinese markets on Tuesday but largely ignored the subsequent decline after the briefing, especially the slump in Hong Kong.
