After weeks of soaring performance that positioned Chinese stocks among the best global performers year-to-date, a sharp selloff swept across Chinese markets overnight, with the Hang Seng Index in Hong Kong plummeting more than 9% on Tuesday.

The massive drop marks the index’s worst single-day loss since October 2008, during the height of the global financial crisis.

In mainland China, the Shanghai Composite Index also faced intense volatility but managed to close 4.6% higher after fluctuating wildly throughout the day, following a holiday week.

Investors, previously riding the rally, rushed to lock in profits, dampened by disappointment over the lack of aggressive fiscal stimulus announcements from Chinese officials.

Lack of Bold Stimulus Disappoints Investors

The sharp downturn was driven by growing disillusionment with Beijing’s latest policy measures, or rather, the absence of any major new stimulus.

Hopes had been high that the National Development and Reform Commission (NDRC) would unveil bold fiscal support to bolster the economy, but no such plans materialized.

Zheng Shanjie, chairman of the NDRC, addressed the nation in a media briefing, reiterating that China is on track to achieve its 5% GDP growth target for the year.

However, while acknowledging the economy’s challenges in the face of a “more complex and extreme” global environment, the only concrete measures announced were a front-loaded 100 billion yuan ($14.1 billion) budget from 2025 and another 100 billion yuan for construction projects. Investors had expected far more robust action, including trillions in new bond issuances and initiatives to stimulate consumption.

The muted response from Beijing rattled the markets.

“While Chinese officials discussed hitting growth targets, they didn’t address further stimulus measures. The markets want their lifeline!” wrote macroeconomist Ayesha Tariq, summarizing the frustration.

Goldman Sachs analyst Lisheng Wang highlighted that some investors had been expecting concrete stimulus measures ahead of the NDRC press conference, so the lack of any major announcements came as a letdown.

“We believe any large stimulus package would require joint efforts from key ministries and significant fiscal resources,” Wang wrote, adding that major measures—such as a central government special bond issuance—could still be announced later in the year.

Goldman Sachs anticipates that China may approve an additional 1-2 trillion yuan in ultra-long-term government bonds by year-end to support debt swaps and maintain a fiscal easing stance in 2025.

Despite the initial disappointment, Goldman Sachs remains optimistic that further steps to boost domestic demand, stabilize inflation, and rebuild market confidence are still on the horizon.

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Market Reactions: Offshore Chinese Equities Tumble

Chinese stocks trading in offshore markets, such as those in Hong Kong and New York, were the hardest hit.

These stocks are heavily owned by foreign investors, making them more sensitive to shifts in risk sentiment. The combination of profit-taking after weeks of gains and the lack of immediate fiscal stimulus sent these shares plummeting.

Shares of Chinese tech giants listed in Hong Kong—such as Tencent Holdings, Xiaomi, and electric vehicle maker BYD—fell more than 8%. Heavily indebted property developer Country Garden Services Holdings plummeted by 15%.

The selloff extended to U.S.-listed Chinese stocks during premarket trading on Tuesday, where major names tumbled sharply:

• Tencent Music Entertainment Group TME -10.4%
• Li Auto Inc. LI -9.7%
• XPeng Inc. XPEV -8.6%
• PDD Holdings Inc. PDD -8.4%
• NIO Group Inc. NIO -7.6%
• JD.com Inc. JD -7.6%
• Baidu Inc. BIDU -7.4%
• NetEase Inc. NTES -6.3%
• Alibaba Group Holdings Ltd. BABA -5.6%

Exchange-traded funds tracking Chinese equities also took a major hit:

• iShares MSCI China ETF MCHI -10%
• KraneShares CSI China Internet ETF KWEB -9.7%
• iShares China Large-Cap ETF FXI -8.3%

What Comes Next?

With investors eagerly awaiting further developments, the next few weeks will be critical for China’s stock markets. Analysts are watching closely for announcements from ad-hoc government meetings and the upcoming National People’s Congress standing committee session, where more concrete fiscal actions could be unveiled.

Another major global event impacting China markets will be the U.S. presidential election on Nov. 5.

Looking further ahead, early to mid-December will see another Politburo meeting, specifically on economic policies, followed by the Central Economic Work Conference in mid to late December, where China’s broader economic strategy for the next year could be laid out.

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