(Bloomberg) — Chinese stocks ended Tuesday morning trading lower amid growing debate over how long the rally will last.
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The CSI300 index was down 0.5% as of 11:30 a.m. local time, having previously fallen as much as 1.4%. It rose 1.9% on Monday. Share prices of Chinese stocks listed in Hong Kong fell by more than 1%.
Volatility has dominated the market in recent trading as investors assess the sustainability of the stimulus-driven rally that began late last month. The scale of the Chinese government’s planned fiscal expansion remains unclear, adding uncertainty to stock price movements. Caixin reported that China could raise 6 trillion yuan ($846 billion) in super-long-term special bonds over three years as part of efforts to boost its sputtering economy.
“There’s a lot of skepticism that the stimulus that’s been announced so far won’t be enough,” said Nathan Toft, chief investment officer and senior portfolio manager at Manulife Investment Management. “We’re tactically overweight in Chinese stocks. We don’t necessarily believe this is a structural change.”
Investors are calling on the government to increase fiscal spending following the central bank’s easing measures at the end of September. At a weekend briefing, officials promised new measures to support the real estate sector and signaled more government borrowing, although they did not specify amounts.
As the bull market shows signs of easing, a divide in opinion is widening among investors around the world. Morgan Stanley Wealth Management has warned that investors should avoid soaring Chinese stocks as stimulus is not enough to repair the struggling economy. Wells Fargo Investment Research Institute is also skeptical that the recovery will last, given the weak sentiment among Chinese consumers.
He said he still sees UBS Group as value, and that increased interest from retail investors should give the stock further upward momentum.
The latest economic reports show that stimulus is badly needed. Export growth slowed more than expected in September, curtailing the trade recovery that had been a bright spot amid the economic downturn. Loan expansion was also disappointed by signs that domestic demand remained weak.
“Chinese policy stimulus signals have led us to become moderately overweight, especially given weak valuations,” BlackRock Investment Institute’s Wei Li and other strategists wrote in a note. said. “The details are not clear, so if future announcements do not meet expectations, we may change our view.”
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–With assistance from Sujata Rao.
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