Chinese stocks added to their advance from Monday, with local media urging investors to be patient as the latest support measures work their way through the market.
(Bloomberg) — Chinese stocks added to their advance from Monday, with local media urging investors to be patient as the latest support measures work their way through the market.
The CSI 300 Index rose as much as 1% in early trading Tuesday. That’s after a 1.2% gain in the previous session, when a 5.5% surge at the open cooled through the day. The moves follow weekend measures by authorities, which included the first cut in stamp duty since 2008 as well as curbs on share sales by major stakeholders.
The effectiveness of the policies shouldn’t be solely measured by short-term performance, Shanghai Securities News said in a commentary, while Securities Times added investors shouldn’t be skeptical about the effectiveness of the measures. As the strong opening rally in Chinese stocks faded on Monday, some investors said the nation needs to unleash a big stimulus package, like it did in 2008, to revive investor confidence.
READ: Markets Show China Needs Stimulus ‘Bazooka’ to Woo Investors
Current policy moves are a “good start in terms of rebuilding the confidence but they are insufficient” in terms of setting market direction, Winnie Wu, China equity strategist at Bank of America Corp., said in a Bloomberg Television interview. “I think what investors are fundamentally concerned about is the economy. It is the fundamental problems in property, in LGFVs, private sector, employment.”
While calls for broad stimulus are mounting, authorities have held back given their determination to shift away from the debt-fueled growth model. China will refrain from launching a really big, bazooka-like stimulus and instead employ moderate measures, according to 57% of 455 respondents in the Markets Live Pulse survey conducted Aug. 21-25 globally among Bloomberg News readers on the terminal and online.
In Hong Kong, the Hang Seng gauge of Chinese shares advanced as much as 1.9%, boosted by gains in BYD Co. following solid earnings. The index closed up 1.2% in the previous session.
Beijing’s steps may help shore up investors’ sentiment to a certain degree and marginally encourage trading activities in the near-term, but their long-term impact will be limited, Morgan Stanley analysts including Laura Wang and Fran Chen wrote in an Aug. 28 note.
Other measures announced Sunday included a cut in deposit ratios for margin financing as well as a pledge by the China Securities Regulatory Commission to slow the pace of initial public offerings. Separately, stock exchanges asked some mutual funds to avoid selling equities on a net basis, Bloomberg News reported late on Monday, citing people who asked not to be identified discussing private information.
“I would say next two three weeks are very important policy window,” Wu of BofA said. “But if there is no more policy coming out by mid-September, for the rest of this year earnings, economy and the market could face a pretty challenging time.”
–With assistance from Abhishek Vishnoi and David Ingles.
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