Chinese stocks tumble as investors prepare for earnings slump, eye bigger stimulus to revive growth
- Investors are pricing a slowdown in first quarter earnings amid disruption to manufacturing and supply chains
- All eyes on the Politburo after it advocated widening fiscal deficit and selling special sovereign bonds to fund stimulus
Chinese stocks fell as investors turned skittish on the economic outlook and a slump in corporate earnings, even as Beijing unveiled a slew of measures to blunt the fallout from the coronavirus pandemic.
The Shanghai Composite Index declined 0.9 per cent at the close of trading on Monday, the most in a week, after earlier sliding as much as 1.8 per cent. The ChiNext gauge of smaller companies slumped 2.3 per cent.
The loss reflects the jitters among stock traders even as top policymakers said China will widen its fiscal deficit and sell special bonds to help fund its stimulus programmes and the People’s Bank of China cut a gauge of borrowing costs in the money market.
The stimulus may do little to revive growth, according to Chen Hao, a strategist at KGI Securities in Shanghai. While China has signalled the health crisis is abating by allowing more manufacturers to resume production, it is too deeply linked to a breakdown in the global manufacturing chain.
“That is not helpful to mend the damaged global supply chain and restore foreign trade” as other countries are still facing an elevated crisis, Chen added. “There’s also a lack of figures in the plans, without which it would be hard to quantify its impact.”
Investors are now starting to price in the slowdown in corporate earnings and the impact of the disruption to global supply chains on listed companies’ production and overseas orders, said Wang Chen, a Shanghai-based partner at Xufunds Investment Management.