(Bloomberg) — A rally in onshore Chinese stocks on their return from a week-long holiday cooled as traders questioned Beijing’s resolve to add more stimulus. Shares in Hong Kong tumbled.
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The benchmark CSI 300 Index was 5.1% higher after surging almost 11% in the opening minutes. Equities pared gains after officials at China’s top economic planner — the National Development and Reform Commission — held back in unleashing any more major stimulus at a press briefing.
A gauge of Chinese shares listed in Hong Kong tumbled as much as 11% after having climbed by almost the same amount in the period that onshore markets were shut. The CSI 300 had risen for nine straight days through Sept. 30 before the Golden Week break, boosted by a stimulus blitz that included interest-rate cuts, freeing-up of cash for banks and support for stocks.
“The durability of this China rally will depend on action following words on the fiscal side of the equation,” said Aleksey Mironenko, global head of investment solutions at Leo Wealth in Hong Kong. “The key thing we are watching going forward — what policies will be announced in coming weeks following the Politburo and State Council statements? That will determine if our overweight is a tactical one — to be taken off as relative valuations change – or a strategic one.”
Even before mainland markets reopened, skepticism had been growing over the surge in Chinese shares. Many strategists and fund managers had viewed the recent rebound with wariness and said they were waiting for Beijing to back up its stimulus pledges with real money. Some had also become concerned many stocks were already at overvalued levels.
An overheating of the A-share market and the Chinese government’s delivery on its recently-announced policy stimulus are among the risks investors should watch amid the Chinese stock market rally, Morgan Stanley strategists including Laura Wang in Hong Kong wrote in a research note.
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