Hang Seng index plummets by 10% as Beijing falls short on stimulus

Hong Kong’s Hang Seng index is behaving like a penny stock… China has no choice but to do straight quantitative easing (QE) to spread about the stimulus — so says Goldman's Borislav Vladimirov, who says failure to do so will result in an even bigger mess down the line. Hard to argue with this.

The Hang Seng tanked by close to 10% before clawing back to a smaller loss of 9.4% on the day as authorities in Beijing failed to provide new details on further stimulus measures.

Disappointment over China stimulus leads major global indices to dip by 1%

Stocks dipped lower on Tuesday after a jittery start to the week on Monday saw a mixed bag for equity markets. Energy shares outperformed to help the FTSE 100 rise a touch yesterday but disappointment over China stimulus measures has sent all the major indices lower this morning by around 1%.  

Basic resources and luxury were among the worst-hit sectors due to their exposure to China. US stocks fell about 1% yesterday and oil prices extended gains on Middle East tensions with Brent rallying above the $80 mark. The US 10-year yield rose above 4% for the first time in a long while whilst UK gilt yields advanced further.  

Domestic China stocks surge after Golden Week holiday but fail to retain momentum

Chinese shares rocketed as the main bourses reopened after a holiday, but lost momentum as the country’s National Development and Reform Commission failed to offer anything new on expected stimulus measures. The market had been pinning a lot of hope on some new measures, but didn’t get what it wanted. 

There is a clear impact on the miners — Glencore had rallied 20% over the last month, so today’s 5% decline reflects as much the strength of the run-up as much as the disappointment today. Aluminium, copper and other industrial metals declined about 3%. Oil pulled back on the China story after touching the 200-day SMA resistance.  

Citi remains “bullish” on China stocks, raises mid-2025 forecasts

As for David Tepper’s “buy everything China” trade... 

According to Citi, the Chinese government is likely to do more in due course. The bank said in a recent note: "We remain bullish because Chinese equity valuations are still low compared with those of emerging market stocks, even after the past three weeks of share price gains.”  

Citi raised its end-June 2025 targets for major Chinese stock indexes by over 20%, projecting the Hang Seng index to reach 26,000, the CSI 300 to hit 4,600. Goldman Sachs and HSBC also raised their forecasts after the monster rally.  

Gilt yields rise ahead of Budget as Chancellor Reeves set to increase borrowing

The Labour government may well want to change the debt rule to allow for more borrowing for investment. The bond market may not let them. The 10-year gilt yield has risen from around the 3.75% mark in mid-September to close to 4.2% today, whilst spreads have widened. It was on September 23rd that the Chancellor, Rachel Reeves, promised the fiscal event of October 30th would be a “Budget for investment”.  

Labour has spent a lot of time, and no small amount of political capital, on showing it will be credible on finances. It’s not just the threat of more borrowing; the Bank of England is seen cutting a bit more slowly than in Europe, for instance. But as I said last month, watch gilts. The FT leads with this story this morning and notes that the memory of the Truss panic is still vivid.

Sterling continues to lose ground on the US dollar, but the momentum is slackening as it approaches 1.30 and has found some support at the 50-day line at 1.3080.