China stocks plunge amidst growing pessimism

Chinese stocks experienced a significant decline, sparking concerns of a potential freefall despite existing policy measures.

The CSI 300 Index dropped by 0.6 per cent on Wednesday, marking a three-day loss of over three per cent, the largest since January 31. The Shanghai Composite Index briefly fell below the crucial 2,900 level.

Investor sentiment turned pessimistic following the underwhelming outcomes of the recent Third Plenum, with hopes for market catalysts fading. Expectations for a substantial stock market boost from the upcoming Politburo meeting are low.

The recent downturn coincided with a slowdown in equity purchases by the China’s sovereign wealth fund.

“There is some pessimism due to the fact that the Plenum did not provide many concrete reasons to be more upbeat,” said Chen Zunde, fund manager at Guangdong Fund Investment Co.

Market participants are worried about the ongoing economic challenges in China, including a stagnant property market and cautious consumer spending. Geopolitical tensions ahead of the US presidential election add to the negative sentiment.

Redemptions from stock-focused mutual funds in the second quarter were among the highest since 2005.

The national team, China’s sovereign wealth fund, has played a crucial role in supporting the stock market, but concerns persist about the market’s downward trend.

Traders fear that any market-friendly measures from the Politburo may not be sufficient to sustain a rebound, based on historical trends.

The CSI 300 Index currently sits about 10 per cent below its level after the July 2023 Politburo meeting, which had initially boosted investor confidence.

Attribution: Bloomberg