Chinese stocks fall in Hong Kong after disappointing economic data

(Bloomberg) — A gauge of Chinese shares listed in Hong Kong fell after broadly weaker macro data dented optimism about a meaningful economic recovery in the absence of comprehensive stimulus.

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The Hang Seng China Enterprises index fell as much as 1.3 percent, snapping a two-day gain before paring losses 0.5 percent. Alibaba Group Holding Ltd. and Xiaomi Corp. both fell by more than 1%. Mainland equity markets are closed until Wednesday for the holiday.

Indicators of Chinese manufacturing, consumption and investment all slowed more than economists had expected, while the unemployment rate rose, data showed on Saturday. Missing the annual growth target may further undermine investor confidence, with overseas funds already pulling a record amount of money out of the country in the second quarter.

A rally in domestic stocks earlier this year has lost steam, with the CSI 300 index closing at its lowest level in 2019 last week. Decreases can increase in the absence of a strong stimulus.

“Recent Chinese economic data paints a bleak picture, with key indicators missing expectations and signaling increased uncertainty for China equities,” said Manish Bhargava, chief executive at Straits Investment Management.

While aggressive stimulus may provide a short-term boost to stocks, the authorities’ incremental measures to date have raised “doubts about the potential size and effectiveness of future intervention,” he said.

Macroeconomic conditions have now become so weak that it challenges the case for owning Chinese stocks because of their extremely cheap valuations.

Valuations look tempting, but “when you look at the macro, they don’t exist,” Ecaterina Bigos, chief investment officer for Asia excluding Japan at AXA Investment Managers, said in a Bloomberg TV interview. “The macro elements are very weak overall.”

Investors need to see “some strong and decisive action from the government” to boost consumption, services and property before they take advantage of cheap valuations, she said.

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