Hong Kong (Reuters) – China’s property market concerns continue to drag on stocks, as investors lose faith in the government’s ability to address the issue. The recent Third Plenum leadership summit’s policy goals failed to prioritize the real estate sector, leaving markets unimpressed.
The Shanghai Composite Index and Shenzhen Component Index have seen valuations decline, while the CSI 300 stock benchmark has remained flat since January. The Hang Seng Index has gained a mere 2% this year, giving up its bull run.
Offshore investors have withdrawn 80% of their cumulative net purchases of Chinese equities this year, peaking at 96 billion yuan ($13.2 billion) in May. The 3% fall in the CSI 300 this week suggests markets have little confidence in Beijing’s ability to fill in the blanks left by the new plenum communique.
“The ‘policy put’ is breaking down,” said a strategist at a large European lender. “Trading cycles are getting shorter and more volatile, with hot money jumping in and out of the market to notch quick profits and avoid losses.”
China’s property market woes have been a major drag on the country’s growth outlook, with home prices falling and homebuyers losing confidence. The government’s crackdown on leverage has exacerbated the issue, leaving a hole in the country’s growth outlook that has yet to be fully filled.
As investors become increasingly skeptical of Beijing’s ability to address the issue, the “policy put” that once buoyed stocks is losing steam. Fleeting rallies are likely to continue, but hot money will jump in and out of the market, avoiding losses when officials make promises and then underwhelm on follow-through.