China Puts Investor Patience to Test as Key Meeting Underwhelms

(Bloomberg) -- China’s highly anticipated Finance Ministry briefing on Saturday lacked the firepower that equity investors had hoped for, indicating that the volatility that’s gripped the market following a world-beating rally will likely extend.

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While Finance Minister Lan Fo’an promised more support for the struggling property sector and hinted at greater government borrowing to shore up the economy, the briefing didn’t produce a headline dollar figure for fresh fiscal stimulus that the markets had sought. A lack of new incentives to boost consumption, which has been a weak link in the economy, is another reason why traders may feel disappointed.

The ministry “tried its best,” but there is a large gap between what was announced and what the market was expecting, said Shen Meng, a director at Beijing-based boutique investment bank Chanson & Co. “So the overall sentiment for investors is negative.”

Patience has been wearing thin among investors, who have clamored for Beijing to announce big-bang fiscal measures to help sustain the rally sparked by the stimulus blitz that authorities unleashed in late September. The CSI 300 Index, a benchmark of onshore equities, capped its biggest weekly loss since late July on Friday, with volatility rising ahead of the MOF briefing.

A further unwinding of the rally risks fueling concern that equities are heading for yet another false dawn, which may bring more selling pressure. The market has been caught in a start-stop cycle of gains and losses a few times before as Beijing’s piecemeal approach to stimulus produced only brief rebounds.

Local governments will be allowed to issue special bonds to buy unsold homes and turn them into subsidized housing, Lan and his deputies said on Saturday, while refraining from putting a price tag on any additional stimulus. Lan also hinted at room for issuing more sovereign bonds and greater government spending, steps that could be announced later this month or early November.

Prior to the weekend, investors and analysts surveyed by Bloomberg had expected China to deploy as much as 2 trillion yuan ($283 billion) in fresh fiscal stimulus on Saturday, including potential subsidies, consumption vouchers and financial support for families with children.