After several days of gains, the A-share market experienced a sudden large correction on Wednesday, with market sentiment reversing sharply. During the morning session, the Shanghai Composite Index fell by over 4%, and the ChiNext Index by as much as 7%. As of October 9, the Shanghai Composite Index was down 4.40% to 3,336.26 points; the Shenzhen Component Index was down 5.61% to 10,850.44 points; and the ChiNext Index was down 7.26% to 2,365.09 points.
Meanwhile, Chinese stocks listed overseas also plummeted overnight, with the Chinese Companies Index recording its largest drop in a year and a half, falling by about 7%. Alibaba fell 6.67%, JD.com fell 7.52%, NetEase fell 5.14%, Baidu fell 7.39%; Li Auto and XPeng Motors fell 8.10% and 7.26%, respectively.
The main reason for this significant market pullback was investors' disappointment over the expected fiscal stimulus from China. Previously, there was a general optimism that large-scale fiscal measures by the Chinese government could boost economic recovery, but the weak spending data during the National Day holiday, coupled with the lack of new major policies announced at the State Council's press conference on Tuesday, dampened enthusiasm for China's economic rebound.
According to data from the Ministry of Culture and Tourism, although the number of tourists during the National Day Golden Week increased by 10.2% compared to the pre-pandemic period in 2019, the growth in consumer spending was only 7.9%, indicating insufficient economic recovery momentum. Yi Wang, head of quantitative investment at South East Asia Asset Management, pointed out that the market is currently oscillating between expectations of stimulus policies and economic realities. Investors hope to see a quick translation of policies into corporate earnings and macroeconomic data improvement, but in the short term, there is a time gap between expectations and reality.
Additionally, Alvin Tan, head of Asia FX strategy at RBC Capital Markets, stated that the recent positive sentiment towards Chinese assets was based on the expectation of significant fiscal policy. If the government fails to implement stimulus measures in the range of 2 to 3 trillion RMB that meet market expectations, market sentiment could quickly reverse.
Amid heightened global economic uncertainty, the trend of A-shares remains to be observed, with continued attention on whether the Chinese government will adopt new economic stimulus measures to bolster investor confidence.
