Chinese stocks fell sharply on Tuesday as the frenzied rally that drove the markets to multi-year highs stalled, while investors wait to see the extent and speed of government-led support for the world's second-biggest economy.
The Shanghai Composite slumped 2.5% in heavy trading into the market close, while the blue-chip CSI300 lost 2.7%. Hong Kong's Hang Seng dropped 3.7% and the yuan skidded out to a one-month low.
China's markets have been on a wild ride since late-September when a series of policy announcements drove speculation that the government was finally serious about spending money to salvage this year's 5% growth target.
The CSI300 index, which is up 20% since the closing bell on Sept. 23, has turned bumpy and unable to break resistance around the 4,000 mark.
On Saturday, the finance ministry said it would increase borrowing, without saying when or by how much. A lack of specifics has unsettled investors, China Everbright Securities International analyst Kenny Ng said, especially as weaker-than-expected inflation data points to soft consumer demand.
"This is also a reason why the consumer sector experienced significant declines today," he said, with the Hang Seng, which finished at 20,318.8 potentially testing the 20,000 level ahead.
Most market sectors were lower on Tuesday, with banks and brokers taking some of the heaviest losses as their scorching rally cooled. Mainland developers' Hong Kong shares fell 4.3%.
SPENDING WANTED
Caixin Global reported on Tuesday that China may raise an additional 6 trillion yuan ($850 billion) over three years to fund stimulus and investors say they want to hear more soon.
"We reckon more details will be shared at the Standing Committee of the National People's Congress later this month," said Alex Loo, macro strategist at TD Securities.
Officials have reiterated intentions to achieve around 5% growth, which has stoked expectations that spending must be imminent especially as recent economic indicators have been weak.
Monday's trade and new lending figures for September, missed expectations. GDP data is due on Friday and is seen slowing to an annualised 4.5% for the third quarter.
"If we still achieve 5% this year, then we can see perhaps we are already at the bottom of this L-shaped path (for China's growth-rate), which I think would help anchor market expectations," said Citi's chief China economist Xiangrong Yu
"In this sense, it's pretty important," he said. "Otherwise, I think, it seems this slow-down process is a non-ending process."
Broader markets in Asia were fairly steady, while the yuan slid about 0.4% to a one-month low of 7.1223 per dollar. The coming weeks are seen as crucial to picking up Chinese growth, leaving traders on edge for spending news.
"I believe October and November are the critical time window for deploying the money to form GDP for this year," said Citi's Yu.
