(Bloomberg) — A gauge of Chinese stocks listed in Hong Kong fell after broadly weaker macro data dashed optimism of a meaningful rebound in the economy in the absence of comprehensive stimulus.
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The Hang Seng China Enterprises Index slid as much as 1.3%, snapping a two-day gain before trimming losses to be 0.3% lower. Property stocks were among the top losers with a gauge of the sector dropping as much as 1.8%. Mainland equity markets are shut until Wednesday for holidays.
Disappointing economic data over the weekend is adding pressure on the authorities to ramp up fiscal and monetary stimulus if the nation is to reach this year’s growth target. As deflation gets entrenched, investors are hoping the government will boost fiscal spending and or even try to directly help the consumer.
Investors need to see “some forceful and decisive measures from the government” to boost consumption, services and property before they will take the opportunity offered by cheap valuations, Ecaterina Bigos, chief investment officer for Asia excluding Japan at AXA Investment Managers, said in a Bloomberg TV interview.
Failure to achieve the annual growth target may further undermine investor confidence, with overseas funds already pulling a record amount of money out of the country in the second quarter. A rebound in the nation’s equities earlier this year has lost momentum, with the CSI 300 Index closing at its lowest since 2019 last week. Declines may increase in absence of a forceful stimulus.
“The recent Chinese economic data paints a grim picture, with key indicators missing expectations and signaling heightened uncertainty for China equities,” said Manish Bhargava, chief executive officer at Straits Investment Management.
While aggressive stimulus may offer a short-term boost to equities, the authorities’ incremental measures to date have raised “doubts about the potential scale and effectiveness of future intervention,” he said.
Macro conditions in China have now turned so weak they are challenging the argument about owning China equities due to their ultra-cheap valuations. The HSCEI trades at 7.1 times its 12-month forward earnings estimate compared with its five-year average of 8.4 times, according to data compiled by Bloomberg.
Valuations look tempting, but “when you look at macro, it is not there,” said Bigos of AXA Investment Managers. “Macro elements are very weak across the board.”
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