China Stocks Close to Erasing Politburo Gains Amid Economic Woes

(Bloomberg) — China’s benchmark stock index is close to erasing all of the gains it made since a key political meeting was held in late July as the economy struggles to gain momentum and optimism over stimulus wanes.

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The CSI 300 Index fell as much as 1.4% in early trading Monday after plunging 3.4% last week. The move wipes out the bulk of the advance the gauge had posted following the pro-growth tone of the Politburo meeting on July 24.

A gauge of mainland stocks listed in Hong Kong declined as much as 2.8%, taking this month’s loss to over 7% to lag the MSCI Asia Pacific Index which is down 5%. The Nasdaq Golden Dragon China Index tumbled 3.7% Friday, also taking out gains since the top meeting.

“The market sentiment is ultra weak and the Politburo boost looks like it was just an interlude amid the pessimistic theme that has prevailed over the past months,” said Wang Mingli, executive director at Shanghai Youpu Investment Co. “After a brief round of optimism, investors are again disappointed as they realize that policies are still not concrete enough to offer a real lift to the economy.”

The post-Politburo rally has gone into reverse due to increasing signs recovery is losing traction, and concern that Beijing’s steps to counter the slowdown are too small and too slow. Investors have also soured on the nation’s outlook due to the troubled property sector, while jitters are also mounting over a trust company’s delay in paying its maturing wealth products.

One of the nation’s largest developers, Country Garden Holdings Co., unsettled markets last week amid fears of a default.

The offshore yuan dropped for a third day to approach the year’s low, even after the central bank stepped up its support for the currency with a stronger-than-expected fixing.

“There’s indeed a massive wall of worry for China bulls” and foreign investors continue to sell, said Derek Tay, head of investments at Kamet Capital Partners Pte. “Lots of cracks are showing, no less in credit risks, triggered by the latest Country Garden profit warnings.”

Overseas investors, who had snapped up onshore Chinese stocks for two weeks following the Politburo meeting, sold each day last week, withdrawing a net 25.5 billion yuan ($3.5 billion). That was the most for any week since October. They sold 1.6 billion yuan of shares as of 10.40 a.m. local time Monday.

–With assistance from Ishika Mookerjee.

(Updates with prices, analyst commentary and currency moves)

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