Shares of Chinese companies PDD Holdings, Tencent, and Li Auto faced significant declines today. PDD fell by 6.1%, Tencent by 4.8%, and Li Auto by 4.4% by midday. This downturn follows a strong rally since September, triggered by anticipated government stimulus. However, investors are now wary as the concrete measures appear insufficient to rejuvenate economic growth.

The recent release of September trade data further exacerbated concerns, showing only modest growth in exports and imports, both falling short of expectations. China, as an emerging economy, had set a 5% growth target for the year, but the current figures suggest challenges in achieving this. Added to this, the consumer price index showed minimal inflation of just 0.1% in September, the lowest seen since early 2021. While low inflation can be advantageous for economies battling post-pandemic issues, for China, it indicates potential economic stagnation, hinting at a risk of deflation.

Last weekend, finance minister Lan Fo'an announced intentions to support regional banks and stabilize the property market, but lacked specifics on direct fiscal stimulus to households, a critical expectation from the market. Furthermore, there's speculation around China's plan to issue $846 billion in long-term bonds to address off-balance sheet debts of local governments. Although substantial, it seemed inadequate given China's massive scale, failing to deliver the expected consumer-direct stimulus "bazooka."

Consequently, stocks like PDD, Tencent, and Li Auto, which experienced remarkable gains in September and October, are now experiencing sharp declines. PDD and Li Auto had rallied over 50% between mid-September and early October, while Tencent saw more than a 20% rise before the momentum began to wane. Investors remain divided about China's economic path. Some hedge fund managers are optimistic about the measures announced in September, though significant skepticism persists.

China requires a robust stimulus to restore consumer confidence and growth. Any short-term stimuli must be supplemented by structural, pro-capitalist reforms for sustained impact. China is expected to introduce additional stimulus measures throughout the year, keeping the debate over the prospects of Chinese stocks lively and unresolved.