“In this delicate scenario, it may be advantageous to remain nimble and flexible,” said Redmond Wong, a strategist at Saxo Markets in Hong Kong. “Short-term traders can find opportunities amid volatility. The stocks of state-owned enterprises and large caps will benefit from the [state] buying. Meanwhile, longer-term investors may await clearer signals on [the policy front].”

The CSI 300 Index of onshore stocks climbed 5.8 per cent last week and the Hang Seng Index advanced 1.4 per cent after China’s sovereign wealth fund boosted buying of exchange-traded funds and the securities regulator pledged to slap harsh punishments for trading misconduct and imposed new curbs on short selling.

While the market cheered the moves, China’s economic and corporate fundamentals remain grim. Deflationary pressure deepened in January, and bellwether companies from Alibaba Group Holding to Semiconductor Manufacturing International Corp posted lower profits for the latest quarter.

Short-selling in China slumps to 3-year low after curbs imposed to lift market

The uncertainty over economic policies is now further confounded by the indefinite delay in the Communist Party’s third plenary session of the Central Committee, which was supposed to be convened in the fourth quarter last year.

Historically, policymakers gathered at the plenum to discuss and work out economic development strategies for the next five years. A clear approach to market-friendly policies is vital to revive confidence among the nation’s entrepreneurs and investors, who have been traumatised by draconian zero-Covid policies and curbs on the tech industry over the past three years.

Big companies still balk at making investments in new businesses because of the cloudy policy outlook. For example, Tencent Holdings’ founder Pony Ma Huateng recently said the social-media giant would rather sacrifice a share of its digital payments market to avoid confrontation with state-owned banks.

Besides a slumping property market and fragile consumer confidence, China is also facing a potential flare-up in geopolitical tension. US lawmakers are targeting Chinese biopharmaceutical companies, with a proposed bill banning them from doing business with the American government.

Hong Kong stocks slide amid China economic woes as Year of Rabbit ends in pain

The episode has seen billions of yuan evaporate from the market values of WuXi Biologics and WuXi AppTec, the biggest players in the biotech industry. Meanwhile, former president Donald Trump has threatened to levy tariffs of more than 60 per cent on Chinese goods if he is elected. American voters will pick a new president in November

These headwinds continue to unsettle investors, particularly overseas traders who have dumped a record 201 billion yuan (US$27.9 billion) of stocks over the past six months even as valuations remain at historical lows.

“While Chinese stocks’ relative valuations are at an all-time low, the prospects for the asset class are not particularly bright as investors doubt Beijing’s willingness to deliver large-scale fiscal support to revive the stock market,” Pictet, which maintains a neutral stance on Chinese stocks, said in a report last week. “What is more, turnaround in the property [sector], which is key for an improvement in sentiment, is not in sight.”

China’s stock markets have lost about US$3 trillion since the start of 2021 and Hong Kong US$2 trillion, according to Bloomberg data. On average, companies in the CSI 300 Index are valued at 12 times estimated earnings, while the multiple for the Hang Seng Index members is 7.8 times, the data shows.

China appoints new securities chief to head off stock market slump

Hopes for more follow-through rescue measures are rising among investors after Beijing in a surprise move named a new head to oversee the nation’s US$8.3 trillion stock market last week. Wu Qing, a veteran with years of experience both at the Shanghai Stock Exchange and the securities regulator, has replaced Yi Huiman as the chairman of the China Securities Regulatory Commission (CSRC).

The reshuffle signalled more attention to the capital market from China’s top leaders, who are likely to lend Wu more support, according to Jefferies.

Wu is seen as a close aide to Premier Li Qiang, who last month urged more forceful measures to end the stock market rout. Wu, the former vice-mayor of Shanghai before taking charge of the CSRC, was one of Li’s lieutenants, when Li served as the party’s No 1 official in charge of the metropolis until 2022.

All these efforts to end the stock rout could be undermined by gloomy economic data and earnings results, foreshadowing further pain for the economy. Consumer prices fell 0.8 per cent in January, the fastest pace since 2009, while Alibaba’s revenue and net income trailed estimates last quarter.

ING expects China’s growth to weaken to 4.8 per cent in 2024, falling short of the possible annual growth target of 5 per cent, as sentiment remains weak and the housing market continues to be a drag on the economy.

“Whether the market has already troughed is not certain,” said Zheng Xiaoxia, a strategist at Hua An Securities. “The key concern has always been the magnitude of the economic recovery and the macro-policy support. So far, there are no material changes to the two.”