Chinese Stocks Dip in Choppy Trade as Investors Debate Next Move

(Bloomberg) — Chinese stocks ended Tuesday’s morning session lower amid a growing debate over how far the rally can go.

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The CSI 300 Index was down 0.5% as of 11:30 a.m. local time, after falling as much as 1.4% earlier. It rose 1.9% on Monday. A gauge of Chinese shares listed in Hong Kong fell more than 1%.

Volatility has gripped the market in recent sessions as investors assess the sustainability of the stimulus-driven rally that began late last month. The size of Beijing’s planned fiscal boost remains unclear, adding uncertainty to equity moves. Caixin reported that China may raise 6 trillion yuan ($846 billion) from ultra-long special government bonds over three years as part of its efforts to boost the sputtering economy.

“There’s a lot of skepticism that the stimulus announced so far just isn’t enough,” said Nathan Thooft, chief investment officer and senior portfolio manager at Manulife Investment Management. “We put on a tactical overweight to Chinese equities. We are not necessarily believers that this is a structural shift.”

Following the central bank’s easing steps in late September, investors have been clamouring for the government to bolster fiscal spending. Officials promised new measures to support the property sector and hinted at greater government borrowing at a weekend briefing, without giving an amount.

A divide is growing among global investors as the rally shows signs of cooling. Morgan Stanley Wealth Management warned that investors should steer clear of soaring Chinese equities as the stimulus measures won’t be enough to repair the struggling economy. Wells Fargo Investment Institute is also skeptical that the rebound will last given the depressed sentiment surrounding China’s consumers.

UBS Group AG still sees value, saying heightened retail investor interest should give stocks further upward momentum.

The latest economic reports show stimulus is much in need. Export growth slowed more than expected in September, curbing a trade rebound that has been a bright spot for a weakening economy. Loan expansion also disappointed in a sign of still weak domestic demand.

“China’s signal on policy stimulus prompted us to go modestly overweight, especially given depressed valuations,” strategists at BlackRock Investment Institute including Wei Li wrote in a note. “Details have been scant, so we could change our view if future announcements disappoint.”

–With assistance from Sujata Rao.