Chinese stocks are close to erasing the Politburo’s gains amid economic woes

(Bloomberg) — A Chinese stock index is close to erasing all the gains it made since a key political meeting in late July, as the economy struggles to gain momentum and optimism about stimulus wanes.

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The CSI 300 Index is down as much as 1.4% in early trade Monday after falling as much as 3.4% last week. The move erases most of the progress posted by the barometer after the pro-growth tone at the Politburo meeting on July 24.

A gauge of Hong Kong-listed mainland stocks fell 2.8%, taking this month’s loss of more than 7% to lag behind the MSCI Asia Pacific index, which fell 5%. The Nasdaq Chinese Golden Dragon fell 3.7% on Friday, also posting gains since the key meeting.

“The market sentiment is very weak and it seems that the strengthening of the Politburo was just a respite amid the pessimistic theme of the past months,” said Wang Mingli, executive director at Shanghai Youpu Investment Co.. “After a brief round of optimism, investors are once again disappointed as they realize that the policies are still not tangible enough to provide a real boost to the economy.”

The post-Politburo rally has been reversed by mounting signs that the recovery is losing momentum, and concern that Beijing’s steps to counter the slowdown are too small, too slow. Investors have also soured about the country’s outlook due to the turbulent real estate sector, while concerns are also mounting about a credit company’s delay in paying wealth products that are maturing.

Country Garden Holdings, one of the country’s largest developers, was unsteady last week amid fears of default.

The offshore yuan fell for a third day to near a year’s low, even after the central bank ramped up support for the currency with a stronger-than-expected peg.

“There really is a massive wall of anxiety for the China bulls,” said Derek Tay, head of investments at Kamet Capital Partners Pte, and foreign investors continue to sell. “A lot of cracks are emerging, no less than the credit risk, from Country Garden’s latest earnings warnings.”

Foreign investors, who snapped wild Chinese stocks for two weeks after the Politburo meeting, sold off every day last week, withdrawing a net 25.5 billion yuan ($3.5 billion). That was the most in any week since October. They had sold 1.6 billion yuan in shares as of 10:40 a.m. local time on Monday.

– With assistance from Ishika Mookerjee.

(price updates, analyst comments, currency movements)

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