A twice-a-decade conclave that’s often heralded major policy shifts in China has this time left stock buyers with few catalysts, setting back hopes of a rebound in the world’s second-largest equity market.

The so-called Third Plenum gave investors little reason to believe that the top leadership is preparing major stimulus to boost demand or arrest the property slump - which has been the bane of China’s economic troubles.

While traders await the release of detailed guidelines as well as corporate earnings in the coming weeks, they expect Chinese stocks to languish in the near term. China’s economic struggles and geopolitical tensions emanating from rising odds of a second Donald Trump presidency are perceived as key risks to the market.

“Without any firm and immediate read-through for markets, equity markets are likely to remain choppy, caught between a rock and a hard place,” Barclays plc strategists including Mitul Kotecha wrote in a note. “The looming threat of trade wars as we approach the US election should keep risk premium for equities high, especially without a new fiscal boost.”

The MSCI China Index slumped as much as 1.7% on Friday, falling every day this week. A gauge of Chinese stocks listed in Hong Kong declined more than 2% to cap its worst week since January. 

As the weak sentiment persisted, signs emerged that the so-called national team was stepping up its purchases of exchange-traded funds (ETFs) tied to shares on the mainland, marking the continuation of a recent trend. The onshore CSI 300 Index erased early losses to finish the day 0.5% higher, with its intraday rebound coinciding with increased turnover in several ETFs that the national team is known to favour.

Chinese shares on the mainland have outperformed their Hong Kong peers this month amid a pickup in activity in these ETFs.

The national team “plays a very important role in preventing stocks from sliding further and forming a bottom”, said Shen Meng, a director at Beijing-based Chanson & Co. “But they are of little help in triggering a rally, which hinges more on economic recovery, corporate earnings improvement and residents’ income growth.”

Chinese President Xi Jinping vowed to make “high-quality development” the guiding force of the world’s No 2 economy at the conclave. The phrase is typically used to signal a push for advanced technology that may provide a buffer against US trade curbs.

Officials normally issue a more detailed report several days after the Third Plenum. Specific measures taking cues from that document are likely to come later this month from a sit-down of China’s 24-man Politburo, which in July focuses on economic issues.

“From a market-moving perspective, I think the end of the July Politburo meeting is more important, and I do expect policymakers to provide more clarity surrounding the recent property market measures, and odds are likely for further stimulus support,” said David Chao, a global market strategist at Invesco Asset Management in Singapore.

While market expectations were low heading into the Third Plenum, investors were keen to get more clarity from the party officials’ long-term vision to determine the policy agenda, instead of a cryptic document that offered few new signals. 

The conclave came at a crucial moment for the stock market, as a policy-driven bounce from February lows had begun to falter. A property crisis that has refused to bottom out, shaky consumer confidence and geopolitical uncertainties have added to a still murky earnings picture, prompting the MSCI China Index to enter a technical correction. The gauge is down almost 12% from a May high.

Focus in the coming weeks will also be on the upcoming results season. Preliminary reports so far suggest that a long-awaited earnings recovery has failed to come to fruition, and results aren’t expected to improve much in the second half of 2024 (2H2024).

Strategists at Citigroup Inc are making no big changes in their sector and stock recommendations.

“From a strategy standpoint, we maintain our preference for global-economy-driven sectors, such as exporters and commodity names (especially gold), rather than domestic-oriented consumption or property names, amid economic weakness which might persist in 2H2024,” a team including Pierre Lau wrote in a note.

  - Bloomberg