SHANGHAI: China's runaway stocks rally began losing steam on Tuesday and Hong Kong shares slumped as officials disappointed markets by providing few specific details on plans to bolster China's slowing economy.
Mainland markets roared back from a week-long break, hitting two-year peaks with turnover surging past a trillion yuan inside the first 20 minutes of trade. But the benchmarks were soon off their highs and proxies for Chinese growth slipped across Asia as the stimulus-backed buying frenzy showed signs of cooling.
The Shanghai Composite was up 3.1% in afternoon trade and the blue-chip CSI300 rose 4%, having earlier surged as much as 10.1% and 10.8% respectively. Hong Kong's Hang Seng, catapulted to be the top-performing major market this year aided by blistering gains in recent sessions, slid 7.7%.
The Australian dollar fell 0.4% and the yuan headed for its sharpest drop in a year. Iron ore and other industrial metal prices - which are sensitive to China's economic outlook - wobbled lower from morning highs.
European futures fell 0.8%.
Economic planner chairman Zheng Shanjie told reporters that China was "fully confident" of achieving economic targets and will pull forward 200 billion yuan from next year's budget to spend on investment projects and support local governments.
"Markets were hoping to obtain some guidance on the size of fiscal stimulus," said Eastspring Investments' portfolio manager Rong Ren in Singapore, but found little new in Zheng's remarks.
"It is likely we see markets consolidating and digesting what has already been announced, which arguably is meaningful, but not quite enough to satiate lofty expectations."
The biggest gainers were tech hardware makers, brokers, health care companies and builders - all seen likely to get their share of support as the government seeks to boost an economy that has struggled to recover amid a loss of confidence in the wake of a protracted property crisis.
The CSI semiconductor sub-index surged 16.4% and a sub-index of brokers was up 10.6%. Thematic indexes from biotechnology to defence and electric vehicles rose more than 10%.
In Hong Kong, however, mainland property developers fell 11%, which if sustained would make for one of its largest percentage declines in years, though analysts said technical reasons were probably behind the selling.
"There may be a bit of a profit taking," said Natixis' Gary Ng. "I don't think the sentiment is that different. It's really about one market being closed for many days, and the other one has been trading."
The yuan fell sharply to 7.0502 per dollar and five-year bond futures dropped to their lowest since July before rebounding following Zheng's news conference.
GROWTH GOALS
Before the Golden Week break, China announced the most aggressive stimulus measures since the pandemic and the CSI300 gained 25% over five sessions. Last Monday the CSI300 and the Shanghai Composite both notched their largest gains since 2008.
The central bank announced cheap loans for buybacks and a swap program to allow institutional investors to access cash for buying shares. Beijing Balance Medical Technology said on Tuesday its controlling shareholder Jin Lei plans to tap such loans to lift his stake, making it one of the first firms to use the facility. The stock was up 20%.
Beijing has stopped publishing timely investor flow data, but foreign selling in Indian shares last week hinted global investors may be preparing to increase their exposure to China.
For now signs of caution and anxiety were creeping back on Tuesday even as markets strode ahead.
Regulators urged financial institutions to strengthen controls over leverage, and prevent bank loans from illegally entering the stock market, a newspaper affiliated to China's central bank said on Tuesday. At least one fund manager was restricting subscriptions to guard against massive inflows.
"The next window to look for potential a fiscal expansion update would be the Ministry of Finance press conference & National People’s Congress meeting later this month," UBS analysts said in a note to clients. - Reuters
