Chinese stocks drop as Xi's milestone speech disappoints traders

Chinese equities declined as President Xi Jinping’s speech on the country’s four decades of reforms did little to lift sentiment.

The Shanghai Composite Index closed 0.8% lower, paring some losses. The tech-heavy ChiNext gauge fell 0.5% and Hong Kong’s Hang Seng Index dropped 1.1% as of 3:30 pm local time, wiping out an early advance. Trading volume on the Shanghai gauge was almost 30% below its 30-day average, according to data compiled by Bloomberg.

With no specific policies mentioned by Xi, "Investors should wait for the Central Economic Work Conference for a policy tone and measures from the two meetings early next year," said Dai Ming, a Shanghai-based fund manager with Hengsheng Asset Management. "It takes time for these policies to be rolled out and really have an impact."

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The annual economic policy gathering will take place later this week, an event that has fueled speculation the government will loosen policy to aid growth. Tax cuts may be top of the reform agenda for next year, the China Daily reported on Tuesday, citing an unidentified tax administration official.

"A-share investors are normally conservative before such meetings," said Zhang Gang, a strategist with Central China Securities in Shanghai. "It’s still uncertain what kind of policies will be announced. It remains to be seen how much the government will cut taxes. Also, the slump in US stocks overnight has affected sentiment," he said.

Equity markets were lower across Asia in the wake of a sell-off in the US, where the S&P 500 Index closed at its lowest in 14 months. The MSCI Asia Pacific Index was down 1.1%.

"Hong Kong and China stocks should have slumped to follow the US at open, but they didn’t, which was unusual," said Castor Pang, head of research at Core Pacific-Yamaichi International HK. "That was because investors were expecting the Xi speech. But now that nothing special has been announced so far during the speech, investors are just doing what they should have done earlier and following the overnight rout in the US."