China stock rally fizzles as stimulus optimism fades

(Reuters) -A sharp rally in China shares at Tuesday's open lost steam as a hotly anticipated briefing by the country's state planner failed to sustain optimism for further stimulus.

Mainland markets soared to more than two-year highs on their return from a week-long holiday, with the blue-chip CSI300 and the Shanghai Composite each rising more than 10%.

However the momentum waned once National Development and Reform Commission (NDRC) Chairman Zheng Shanjie spoke, announcing $28 billion in support for local governments.

He also pledged to quicken fiscal spending, and expressed full confidence in achieving this year's economic growth and development targets.

Before entering the Golden Week holiday, Chinese stocks had already been on a tear, with Beijing announcing the most aggressive stimulus measures since the pandemic.

COMMENTS:

SHAUN LIM, FX STRATEGIST, MAYBANK, SINGAPORE

"China's NDRC has largely disappointed with no new stimulus measures announced. Rally looks to fizzle out today given the NDRC disappointment, but fundamental valuations for Chinese assets remain attractive. Look to see if further measures will be announced later."

KEN CHEUNG, FX STRATEGIST, MIZUHO, HONG KONG

"The FX impact from the NDRC press conference disappointment was largely muted, as the CNH and CNY trading was relatively stable amid the stock market frenzy.

"However, the risks to CNH are skewed to the downside due to cooling China market optimism and the recent USD rally. We noted that the PBoC's massive easing and the positive signals from the Politburo meeting have tempered bearish China growth expectations, outweighing the negative impact from the US-China interest rate spread widening after the PBoC's rate cut.

"An underwhelming stimulus package could swiftly dampen bullish sentiment, giving way to the PBoC's rate cut materialising to weigh on the RMB exchange rate."

SEAN TEO, SALES TRADER, SAXO, SINGAPORE

"I believe there was significant pent-up demand for Chinese stocks, as evidenced by citizens lining up to open new accounts. However, while these market movements can be exciting, they are often not sustainable. The CSI 300 has surged approximately 38% over the past six days. Typically, returns on Chinese markets average around 10%, so we've exceeded that by nearly four times.

"The returns between Hong Kong and Chinese stocks remain largely parallel, although Hong Kong is underperforming today. This underperformance may be due to some investors reallocating their funds from Hong Kong to Chinese markets, where government stimulus is more direct. The Chinese government has a strong capacity to mobilize resources, and if executed correctly, this could lead to Chinese markets outperforming those of other countries."

RONG REN GOH, PORTFOLIO MANAGER, EASTSPRING INVESTMENTS, SINGAPORE

"Markets were hoping to obtain some guidance on the size of fiscal stimulus at this presser – but with MoF not in attendance, it was unlikely this information was going to be provided. Recall market estimates on stimulus ranged between CNY 2 trillion – 10 trillion. A number closer to 10 was needed to sustain the risk rally.

"NDRC Chairman recapped key announcements and pledges with no new information – disappointing the markets.

"What's next? No major press briefing lined up so far. Thus, it is likely we see markets consolidating and digesting what has already been announced, which arguably is meaningful, but not quite enough to satiate lofty expectations."

MATT SIMPSON, SENIOR MARKET ANALYST, CITY INDEX, BRISBANE

"We're seeing a shakeout at the highs of a very strong rally. But when we reach the point of a rally where my neck hurts by looking at it, you could argue a pullback is overdue.

"Either way, it seems some are booking profits after exceptional gains over gold week, and this could deter others from simply stepping in to support the market immediately. And that paves the way for some chop around the top, if not a deeper pullback for China's markets."

ROB CARNELL, ING'S REGIONAL HEAD OF RESEARCH FOR ASIA-PACIFIC, SINGAPORE

"I think there's a lot of expectations for some further meat on the bones of the physical stimulus that's been talked about a bit recently... talk about consumption vouchers, perhaps more infrastructure spending investment."

VASU MENON, MANAGING DIRECTOR, INVESTMENT STRATEGY, OCBC, SINGAPORE

"The strong showing today is not a big surprise as the Chinese bourses are probably playing catch-up after both the Hang Seng Tech Index in Hong Kong and the Golden Dragon Index in the U.S. surged by over 10% in the first week of October when Chinese markets were closed for the Golden Week holidays.

"There are no clear signs that the Chinese economy is on the mend yet, so this rally is largely sentiment-driven and sparked by Beijing's stimulus blitz in late September.

"Ultimately for the rally to be sustainable, we need to see more fiscal policy and more measures to support the economy and the property market. A great deal of hope has been built into the strong rally in recent weeks and we now need to see additional government policy action to support the uptrend."

GARY NG, SENIOR ECONOMIST, NATIXIS, HONG KONG

"I think the movement today basically explains that in the Chinese onshore market, it's just rising to a level that investors are comfortable with.

"Because no one is really certain about what is going on in the stimulus... there could be a bit of uncertainties about whether it is above or below market expectations."

JUN RONG YEAP, MARKET STRATEGIST, IG, SINGAPORE

"Mainland China stocks are largely playing catch-up, after being out for the Golden Week holiday over the past week. Optimism around recent stimulus efforts remains at play."

CHRISTOPHER WONG, CURRENCY STRATEGIST, OCBC, SINGAPORE

"So far, the NDRC press conference appears to run short on details with regards to stimulus measures. Hopes were raised but the delivery was disappointing. Post-opening rally in Chinese equities has fizzled out and the lack of follow-through is a setback to sentiments."

(Reporting by Tom Westbrook, Rae Wee, Ankur Banerjee and Archishma Iyer; Editing by Subhranshu Sahu)