Chinese stock traders ponder just how bad the economy can get

(Bloomberg) — A slew of poor economic data from China is deepening pessimism among equities traders wondering what it’d take for authorities to initiate forceful stimulus.

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Figures released Saturday showed Chinese factory output, consumption and investment all slowed more than forecast for August, and the jobless rate unexpectedly rose to a six-month high. Home prices declined from the previous month.

“The fear is that the authorities are losing control of the economy and they won’t admit it,” said Gary Dugan, chief executive officer of the Global CIO Office. “The market looks set to go to significantly lower levels in the absence of real, substantial new policies.”

Concern that Beijing doesn’t have the stomach to turn things around has weighed on the nation’s equities. The CSI 300 Index fell to its lowest since early 2019 last week. In Hong Kong, the Hang Seng China Enterprises Index has dropped 13% from a high in May.

Any reaction in Chinese stocks on Monday will be focused on Hong Kong, with mainland financial markets closed until Wednesday due to holidays.

Authorities have shown a reluctance to unleash big-bang fiscal stimulus ever since they acted to deflate a property bubble, which has led to the current crisis. Support measures such as interest-rate cuts and state funds’ purchases of exchange-traded funds have done little to revive sentiment.

The result has been an exodus from the nation’s equity markets. In all, some $6.8 trillion has been wiped out from the market value of Chinese and Hong Kong stocks since a peak reached in 2021.

Saturday’s figures suggest the main driver of the Chinese economy this year — bolstered by exports and government support — is losing steam. Industrial output expanded at a slower rate than economists had expected, extending a weakening streak to the fourth month, the longest stretch since September 2021.

The economic data “probably makes the markets feel like authorities are asleep at the wheel,” said Kyle Rodda, a senior market analyst at Capital.Com Inc. in Melbourne.

The People’s Bank of China last week indicated it will step up its fight against deflation and prepare additional policies to revive the economy, after credit data showed private confidence remained weak despite previous interest-rate cuts.

Still, stimulus can only go so far in China’s current business climate, according to veteran emerging-market investor Mark Mobius.

“The real problem is that the entrepreneurial impetus is missing, with lots of businessmen unwilling to invest,” he said. “It will be necessary for the government to loosen up on private enterprise restrictions and regulations so the private sector can be stimulated and help grow the economy.”

—With assistance from April Ma.