(Bloomberg) — Chinese shares ended Tuesday’s morning session lower, amid growing debate over how far the rally can go.
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The CSI 300 Index fell 0.5% as of 11:30 a.m. local time, having previously fallen 1.4%. On Monday the price rose by 1.9%. A benchmark for Chinese stocks listed in Hong Kong fell more than 1%.
Volatility has gripped the market recently as investors gauge the sustainability of the stimulus-driven rally that started late last month. The size of Beijing’s planned fiscal stimulus remains unclear, adding uncertainty to stock prices. Caixin reported that China could raise 6 trillion yuan ($846 billion) in three years from ultra-long special government bonds as part of its efforts to boost its sputtering economy.
“There is a lot of skepticism that the stimulus measures announced so far are not enough,” said Nathan Thooft, chief investment officer and senior portfolio manager at Manulife Investment Management. “We have taken a tactical overweight in Chinese equities. We don’t necessarily believe this is a structural shift.”
Following the central bank’s easing measures at the end of September, investors are calling on the government to stimulate fiscal spending. Officials promised new measures to support the real estate sector and hinted at larger government borrowing during a weekend briefing, without giving a figure.
Divisions among global investors are growing as the rally shows signs of cooling. Morgan Stanley Wealth Management warned that investors should steer clear of rising Chinese stocks as the stimulus measures will not be enough to restore the struggling economy. The Wells Fargo Investment Institute is also skeptical that the recovery will continue given the depressed sentiment surrounding Chinese consumers.
UBS Group AG still sees value and says increased interest from retail investors should give the shares further upside momentum.
The latest economic reports show that stimulus measures are desperately needed. Export growth slowed more than expected in September, dampening a recovery in trade that had been a bright spot for a weakening economy. Credit expansion also disappointed, due to continued weak domestic demand.
“China’s signal on policy stimulus has prompted us to adopt a modest overweight, especially given low valuations,” BlackRock Investment Institute strategists including Wei Li wrote in a note. “Details are scarce, so we may change our minds if future announcements disappoint.”
–With help from Sujata Rao.
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