Chinese stocks experienced a significant drop on Tuesday, with the Hang Seng Index plunging nearly 4% and the CSI 300 falling more than 2%, as disappointing trade data and concerns over the government's economic stimulus efforts rattled investors. The steep declines follow the release of underwhelming September trade figures, which revealed weaker-than-expected export and import growth, intensifying concerns over China's slowing economy.
Mainland China's CSI 300 Index closed 2.66% lower at 3,855.99, while Hong Kong's Hang Seng Index dropped 3.67% to finish at 20,318.79. The broader Asia-Pacific markets, meanwhile, rose, fueled by gains on Wall Street, where both the Dow Jones Industrial Average and the S&P 500 reached record highs. The divergent performance between Chinese stocks and other global markets underscored the growing anxiety surrounding China's economic outlook.
China's trade data, released late Monday, showed exports rising by 2.4% year-over-year in September, while imports edged up just 0.3%. Both figures sharply missed expectations, dealing a blow to hopes that the country's trade sector, which had been a rare bright spot in an otherwise struggling economy, could help offset domestic weaknesses. The sluggish trade data compounded concerns that China's economic rebound remains fragile, despite ongoing efforts by Beijing to stimulate growth.
Volatility has gripped Chinese markets in recent weeks as investors weigh whether the stimulus measures rolled out by Beijing will be sufficient to counter the mounting economic challenges, including deflationary pressures and a deepening property crisis. The CSI 300 has now lost more than 9% since its high in early October, and the Hang Seng China Enterprises Index, which tracks Chinese shares listed in Hong Kong, is down over 12% since the beginning of the month.
Investors are growing increasingly skeptical about the effectiveness of Beijing's stimulus efforts, particularly amid uncertainty about the size and scope of fiscal measures. "There are concerns that any stimulus might be more focused on risk mitigation, especially about local government debt, rather than growth," said Xin-Yao Ng, an investment manager at abrdn Asia Ltd. "Investors definitely prefer a bazooka to reflate the economy quickly."
Despite some government moves to ease monetary policy in late September, including cuts to key interest rates, many market participants remain unimpressed. Calls for increased fiscal spending have grown louder, with many investors advocating for more aggressive stimulus measures to prop up the economy. However, recent reports suggesting that China could raise 6 trillion yuan ($846 billion) over three years through ultra-long special government bonds have done little to inspire confidence. These bonds, according to Bloomberg, are largely intended to help local governments refinance existing off-balance-sheet debt, rather than stimulate new growth.
The market's disappointment was evident in the price action on Tuesday, with the yuan sliding as much as 0.6% in offshore trading, marking its weakest level in about a month. Other Asia-Pacific currencies, which tend to serve as proxies for investor sentiment toward China, also fell, signaling broader concerns about the health of the world's second-largest economy.
The concerns over China's economic outlook are not confined to its domestic markets. Global investors are also divided over the country's prospects, with some warning that China's structural issues could prevent a sustained recovery. Morgan Stanley Wealth Management, for example, cautioned that investors should avoid Chinese equities, arguing that the stimulus measures in place won't be enough to repair the ailing economy. Similarly, Wells Fargo Investment Institute expressed doubt that the recent rebound in Chinese stocks would be long-lasting, given the still-weak sentiment among consumers and businesses.
On the other hand, some analysts remain cautiously optimistic. UBS Group AG noted that increased interest from retail investors could provide some upward momentum for Chinese equities. Meanwhile, strategists at BlackRock Investment Institute said they had turned "modestly overweight" on Chinese stocks due to the country's depressed valuations, although they acknowledged that future policy announcements would be critical in shaping their outlook.
The divide among global investors reflects the broader uncertainty surrounding China's economic trajectory. While the country has taken steps to support its troubled property sector and bolster growth, the lack of detailed plans from Beijing has left many wondering whether the government's efforts will be sufficient to avert a prolonged downturn.
China's export growth, which had been a rare source of strength in an otherwise faltering economy, is now showing signs of slowing, further eroding confidence in the country's recovery. Meanwhile, loan expansion in September also disappointed, signaling continued weakness in domestic demand. "China's signal on policy stimulus prompted us to go modestly overweight, especially given depressed valuations," said strategists at BlackRock. "Details have been scant, so we could change our view if future announcements disappoint."
As Chinese markets falter, other parts of Asia have shown relative resilience. South Korea's Kospi rose 0.39% to close at 2,633.45, while Japan's Nikkei 225 gained 0.77%, closing at 39,910.55. Australian stocks also advanced, with the S&P/ASX 200 ending 0.79% higher. These gains were supported by broader optimism over Wall Street's record-setting performance on Monday, where the S&P 500 climbed 0.77%, and the Dow Jones Industrial Average surged above 43,000 for the first time.
