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Hong Kong stocks fell on Monday after investors were overwhelmed by the fiscal stimulus announced by authorities last week to boost China’s economy.
Following the monetary policy blitz at the end of September, Chinese stocks had been rising over the past week on hopes for more details on the Chinese government’s stimulus plan.
However, investors were disappointed by the lack of measures targeting consumption. The city’s benchmark Hang Seng Index, a barometer of foreign investors’ sentiment towards China, closed down 1.5%.
“Investors are exiting their bullish bets because they feel the major events are over and are feeling a bit discouraged,” said Jason Lui, head of Asia Pacific equities and derivatives strategy at BNP Paribas.
Lui noted that the mainland market is benefiting from increased retail participation and the central bank’s new lending facility, which encourages companies to buy shares. Mainland China’s CSI300 index closed up 0.7% after falling as much as 1.4% in the morning.
The country’s central bank on Monday decided to trade the yuan at 7.18 yuan to the dollar, its lowest level in a year, 0.5% lower than Friday’s decision. The dollar rose 0.3% to $105.3 against a basket of six currencies, including the pound and the yen.
The drop in exchange rates suggests downward pressure on the yuan from investment outflows and traders’ stance on President-elect Donald Trump, potentially triggering trade tensions with China.
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Prices for construction materials iron ore and copper fell on expectations of weaker demand in China, where a real estate crisis has been a drag on growth for years.
Iron ore futures on the Dalian Commodity Exchange fell 3% to 760 yuan (about 16,000 yen) per tonne on Monday. LME copper fell 2.4% to $9,477 per tonne. Shares in BHP Group, the world’s largest listed mining company, fell 4.1% to end at A$41.6 (US$27.4).
Brent crude, the international oil benchmark, fell 0.4% to $73.50 per barrel, affected by China’s demand outlook.
Traders in the options market sold their positions in Chinese stocks in Hong Kong, suggesting they don’t think the fiscal stimulus will cause a big move in the market. Six-month at-the-money options on the Hang Seng China Enterprise Stock Index fell 9.2%.
China’s rubber-stamp parliament, the National People’s Congress, on Friday announced a $1.4 trillion package to restructure local government debt. The long-awaited fiscal plan included allowing local governments to issue bonds to restructure much of the “hidden” debt pile worth about RMB14 trillion.
Finance Minister Lan Foan said the government was “considering” additional measures to recapitalize major banks and boost consumption, but gave no details.
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“There is a perception that the focus is on stabilization rather than stimulus, and no steps have been taken to encourage bank recapitalization or encourage consumption,” Nomura analysts said. So we think this will be a disappointment for equity investors.”
Investors’ attention has shifted to the Central Economic Work Conference, an agenda-setting economic conference that authorities will convene in Beijing in early December for details on further stimulus.
“The constant delays and overwhelming stimulus packages may remind some investors of Green Day’s ‘Boulevard of Broken Dreams,’ a song that reflects feelings of repeated disappointment. ”Nomura added.
