China’s fragile stocks show Beijing needs to act fast on pledges

BLOOMBERG

Chinese stocks resumed declines on Wednesday, underscoring the need for authorities to act quickly for the market to sustain the sharp rebound seen after policymakers’ latest pledges to revive the economy.
The Hang Seng China Enterprises Index, which tracks major Chinese companies listed in Hong Kong, dropped 0.8% after surging 5.3% in the previous session.
A Bloomberg Intelligence gauge of real estate stocks was little changed following a 10% jump.
A swift follow-through of actionable policy measures, especially those for the property sector, will be key to extending the rally in stocks, Laura Wang, chief China strategist at Morgan Stanley, wrote in a note. An early recovery in sentiment could recede in their absence, she added. That view speaks to the caution seen among investors given that Beijing has repeatedly fallen short of expectations for stronger economic stimulus.
Chinese assets from stocks to the yuan and corporate bonds rallied on Beijing’s latest signalling of using further property easing and a consumption boost to revive the economy.
The enthusiasm emerged after months of entrenched pessimism plagued markets against the backdrop of weakening data and geopolitical tensions.
“More details for solutions for longer-term structural challenges need to follow through in the coming months — this, along with further stabilisation in geopolitical uncertainty, is necessary for a more sustainable equity market recovery,” Wang wrote.
Morgan Stanley reiterated its one-year base-case target of 70 for the MSCI China Index. That implies a potential upside of about 11% from its current level.
In the currency market, the offshore yuan swung was down 0.2% against the dollar after gaining 0.7%.
On the mainland, the benchmark CSI 300 Index of stocks slipped 0.2% after climbing 2.9% in the previous session, the most since late November.
Foreign investors were net buyers of 515 million ($72 million) of onshore China shares via trading links with Hong Kong. They bought 19 billion yuan worth of equities on Tuesday, the highest since late 2021.
Goldman Sachs Group Inc says the window for a tactical bounce in Chinese stocks is now open.