A gauge of Chinese stocks traded in Hong Kong recovered from an initial loss during turbulent trading, as investors considered whether disappointing macroeconomic data might lead the government to increase stimulus measures.

The Hang Seng China Enterprises Index remained relatively stable after falling by up to 1.3% earlier in the session. Property stocks experienced some of the largest declines, with their sector index dropping by up to 1.8%, while utility stocks saw gains.

Mainland markets are closed for holidays until Wednesday.

Disappointing economic data over the weekend is increasing pressure on authorities to enhance fiscal and monetary stimulus if the country aims to meet its growth targets for the year.

With deflation becoming more entrenched, investors are anticipating that the government will increase fiscal spending or take measures to directly support consumers, Bloomberg reports.

“Support from fiscal policy, which has lagged throughout 2024, could step up. The government will probably introduce some additional stimulus measures in coming months,” said Wei He, an economist at Gavekal Research

“Still, those measures are unlikely to convince market participants that nominal growth prospects are improving,” he said.

Not meeting the annual growth target could further erode investor confidence, especially since overseas funds already withdrew a record amount from the country in Q2.

A rebound in the nation’s equities earlier this year has lost steam, with the CSI 300 Index falling to its lowest level since 2019 last week. Without a strong stimulus, declines could deepen.

Late last week, China’s central bank signalled its intention to intensify efforts against deflation and prepare additional measures to boost the economy, following weak private sector confidence despite earlier interest rate cuts.

According to Bloomberg News, which cited sources familiar with the situation, the country is expected to lower interest rates on over $5 trillion in outstanding mortgages as soon as this month to encourage consumer spending.

“The recent Chinese economic data paints a grim picture, with key indicators missing expectations and signalling heightened uncertainty for China equities,” said Manish Bhargava, chief executive officer at Straits Investment Management.

Although aggressive stimulus might provide a temporary uplift for equities, the incremental measures taken by authorities so far have raised "doubts about the potential scale and effectiveness of future intervention,” he added.