Chinese Stocks on Brink of Correction as Investor Patience Wanes

(Bloomberg) -- Chinese stocks fell to the verge of a correction in a sign of growing disappointment over the pace of stimulus rollout.

Most Read from Bloomberg

• How Mexico City Averted All-Out Drought

• Inside the ‘Utopias’ of Mexico City

• Dubai’s Allure to Expats Is Weighing on City’s Infrastructure

• Mexico Seeks to Halve Permitting Time to Attract More Factories

• What It Takes to Make City Solutions Go Viral

The CSI 300 Index ended the day 0.6% lower, bringing its declines from an Oct. 8 high to nearly 10%. A gauge of Chinese shares listed in Hong Kong swung between gains and losses before trading up 0.4% as of 3:36 p.m. local time.

The market has been on a roller-coaster ride since late September, when a series of stimulus measures by the central bank unleashed a burst of optimism that’s now quickly cooling. As Beijing takes its time detailing a fiscal spending plan, skepticism is growing whether authorities are willing to deploy greater firepower to turn around the economy and markets.

“This historic surge in momentum at the end of September is of course unsustainable, and given how fast markets rose, it can fall equally fast,” said Marvin Chen, a strategist at Bloomberg Intelligence. “But overall policy actions are moving in the right direction at a quicker pace and when the dust settles, China equities may still trade in a higher range than before.”

While a decline of 10% would push a benchmark into a technical correction, the extreme volatility gripping Chinese stocks of late has made such milestones less meaningful. The CSI 300 soared more than 30% in about three weeks since mid-September before losing momentum.

Chinese investors have been split over whether the rally has already peaked out, or whether there’s room for further gains.

In a fund manager survey by BofA Securities performed Oct. 4-10, roughly half of the respondents saw up to 10% upside potential for Chinese offshore stocks over the next six months, while another 33% saw gains between 10% to 20%.

Nearly a third of them said they are building exposure on signs of easing, up sharply from just 8% in the previous month. Still, three quarters of the respondents said the market is going through a “structural de-rating.”

Property Stocks

The next key event is a press briefing by the housing minister on Thursday, where authorities may provide more details of measures to support the country’s slumping property sector and bolster economic growth. Any disappointment from that event may reignite a selloff.

Chinese property stocks jumped ahead of the briefing, with a Bloomberg Intelligence gauge of developer shares gaining as much as 10% after shedding 7% on Tuesday. The sector has been at the center of investor focus, with stocks seeing wild swings as policy expectations waxed and waned.