China's stock rally fades as stimulus concerns mount

China's stock rally is fading after the Shanghai Composite (000001.SS) fell more than 6% and the Hang Seng (^HSI) fell more than 1% after Tuesday marked its worst day since 2008.

Yahoo Finance Senior Reporter Alexandra Canal reports more on the movement as concerns grow about China's stimulus efforts.

To watch more expert insights and analysis on the latest market action, check out more Catalysts here.

This post was written by Melanie Riehl

Video Transcript

China's stock rally fading just a bit.

The Shanghai composite falling more than 6% and the hanging down more than 1% after yesterday marked its worst day since 2008.

Of course, though, coming on the heels of the massive run up that we saw last week, Yahoo finances, Alexandra Canal is here with a closer look all.

So that you mentioned the Hang Index that's loaded with large Chinese companies and we did see that drop another 1% today.

So continuing those declines that we saw yesterday, you mentioned China's benchmark C si 300 that dropped 7% along with that Shanghai composite as investors really are fully digesting this news and what it really boils down to is that expectations were for a super size stimulus package.

And what we got on Tuesday was pretty much a nothing burger.

Now, remember back in September, we saw the most aggressive stimulus from China since the pandemic with the country saying it is committed to reaching its 5% annual growth target.

That's part of the reason why we seen such a run up in the stocks and investors that they believe that there's more fiscal policy to come due to that commitment from China.

But Wall Street is split at this point about whether or not now is the time to buy into this market.

Here's one point of view about why maybe you should sit on the sidelines for now.

Take a look.

We think long term, we'd rather be in India, Japan over the long term.

The short run pop is, hey, people are feeling better, They're starting to stimulate, will it be enough to move?

Their economy is very much an open question.

The sentiment was so, so negative, but there's also good reason why it's tricky.

That's Jeremy Schwarz, Chief Investment Officer at Wisdom Tree and he's very focused on the geopolitics of it all on the risk that comes along with that.

But on the bullish side, we've seen Goldman Sachs each S BC Black Rock all upgrading mainland China stocks in recent days.

A lot of that has to do with valuation still at historic lows and with hopefully more good news to come on the stimulus side that should be bullish for China in the long run.

But that's the big TBD fact that really has investors on edge right now.

Well, it's interesting too because there's this question out there about whether or not the stimulus is just a sugar high because ultimately, consumers have to recover and have to be spending for us to see kind of a long term recovery.

What does that look like to you Ali in terms of where China stocks are going and what the next big mover for those stocks could be.

We've really seen those consumer staple names.

A lot of the E commerce giant Alibaba at jd.com seen such massive surges.

We are down over the past two days, but still we are up significant double digits there and, and yes, the stimulus is going to have a trickle through effect through the economy that there's mortgage relief.

There is there is a debt relief which I think is something that a lot of the consumers are really looking for.

But it seems like we need more support on the fiscal side, not just monetary economists, they're expecting a big number of fiscal package worth to 184 billion to be announced.

That seems to be the magic number there.

And that also is what was probably expected from yesterday's announcement, which we just did not get.

So the fact that we've seen this policy with fatigue since the pandemic, you know, China said they're going to do more and they just have not, that is a bit of the frustration there.

But given that we saw such a significant package in September that certainly shifted the narrative.

So China can't come out and continue to bring that fiscal policy and bring that big number.

We're going to see those depressed levels in the stock market and we're going to see that that pain really echo even more.

So, you know, it's something that size and execution that is the two things that people are really focused on.

Yeah, it's interesting given that we know so many hedge funds have been very bullish on China, but it looks like it was just a two week ST at least for now.

So now we will see.