On October 8, 2024, investors were eagerly awaiting another bold fiscal stimulus announcement from China’s National Development and Reform Commission (NDRC), following the “bazooka” monetary policy unveiled on September 24. However, what was announced fell flat, leaving markets underwhelmed.
Rather than the expected sweeping fiscal measures, the NDRC’s press conference delivered vague policies with little immediate impact. The only specific figure mentioned was that China would front-load 100 billion yuan from the 2025 central budget for near-term use. But this isn’t new funding—it’s just an advance from the existing budget. Beyond that, we heard general plans about supporting small and medium-sized enterprises, revitalizing idle land, and addressing the property market’s stock of housing. While these are important goals, they fall short of the large-scale stimulus investors were hoping for.
Adding to the disappointment was the reiteration of ongoing projects. The NDRC noted that of the 3.12 trillion yuan allocated for special bonds this year, 2.83 trillion yuan had already been issued, leaving around 290 billion yuan for project construction. Again, this is not fresh capital, but rather a continuation of previously announced funding.
Despite the underwhelming fiscal measures, NDRC Chairman Zheng Shanjie remained optimistic, saying, “We are fully confident in achieving the annual economic and social development targets,” reiterating China’s 5% growth target for the year. This reassurance, however, did little to lift investor sentiment.
As expected, China and Hong Kong stocks reacted sharply. The Hang Seng Index (HSI), which had been on a rally in recent weeks, plummeted as much as 10% in the morning before recovering slightly to close down 9.4%. The Hang Seng Tech Index was hit even harder, dropping 14% at its lowest point before narrowing to a 12.8% decline.
Some of the big losers were
- SMIC -18%
- Ping An -16%
- Meituan -15%
- Haidilao -15%
- HKEX -13%
- JD.com -12%
The market had clearly been banking on stronger fiscal support, and this correction reflects the disappointment that followed.
From a technical standpoint, we had previously flagged the possibility of a bull trap forming in the HSI, and today’s sharp drop confirmed that scenario.
Despite the 9% fall, the recovery trend remains intact for now. There’s a key support level at 19,706 that we are watching closely—this level needs to hold for the bull trend to continue. If it breaks, we could see the bullish momentum fizzle, potentially marking another false start for the market.
In terms of valuation, the HSI’s price-to-earnings (PE) ratio is now sitting at its 5-year average, suggesting a fair price. However, it’s important to note that the last three years have been bearish, dragging down this average. A more normalized PE would likely be higher, indicating that there may still be some value in the market even after the recent rally.
Meanwhile, in mainland China, today marked the first day of trading for A-shares following the National Day holiday. The CSI 300 Index surged 6%, catching up with the Hong Kong rally from the past few days. However, the index is currently sitting just below a critical support level of 4,268. We’ll see if the price can hold above this level, otherwise a pullback to 4,065 could be in play.
While the lack of bold fiscal measures was certainly disappointing, it’s important to remember that no rally goes up in a straight line. The Hong Kong market has surged significantly over the past two weeks while mainland markets were closed. A pullback was expected, and this correction could be a healthy pause before the next leg higher. For patient investors, this might present an opportunity to enter the market at more attractive levels, as the overall rebound still appears to be in play.