Danger of pricing in a 'big bang' China stimulus

Are markets right to bet on China stimulus?

There has been increasing chatter in recent weeks about the possibility of China unleashing a fresh round of stimulus, but those who are hoping for an 'all-guns-blazing' announcement could be left disappointed, analysts say.

"I think the market is pricing in a 'big bang' type of announcement and if that doesn't come out – which it looks like will be the case – then investors will be disappointed," said Daniel Hynes, commodities strategist at Hynes Commodities.

Recent bearish Chinese data, from manufacturing activity to trade figures, have heightened speculation that Beijing will move to prop up its economy.

According Xinhua news agency Friday, Chinese Premier Li Keqiang reiterated this week that the government had well-prepared policies in place and would roll out targeted measures step by step to aid the economy. The news raised further hopes of imminent action from Beijing and helped Asian stock markets erase losses earlier in the day.

(Read more: China's local government debt burden varies widely: Moody's)

Nomura analysts believe fresh stimulus could come as soon as next quarter, in the form of a 50 basis point cut to the central bank's reserve requirement ratio (RRR) - or the amount of cash they must set aside as reserves - both in the second and third quarter

But Hynes said China has already been quietly stimulating its economy over the past year in drip feeds, by the way of infrastructure spending.

Brent Lewin | Bloomberg | Getty Images

Earlier this month the country revealed that it had sign off on 142 billion yuan ($23 billion) worth of railway projects this year, according to a Reuters report.

In mid-2013 the Chinese authorities unveiled a round of smaller measures aimed at stimulating the economy after second quarter growth fell back to 7.5 percent on year, compared to 7.7 percent growth in the first quarter. These included tax breaks for small businesses, reduced fees for exporters and opening up of railway construction.

(Read More: China moving closer to unleashing fresh stimulus)

"They have a very focused strategy, targeting sectors and industries where they see underinvestment," he said. "I think people forget about that and they are looking for a bigger announcement."

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And a lack of such an "announcement" could trigger a further sell-off in global commodity markets, Hynes warned.

Prices of copper and iron ore – China's major commodity exports – have taken a beating in recent times, as a string of negative data damaged sentiment around the world's second largest economy. Copper has lost around 12 percent this year.

(Read more: Urbanization key to China rebalancing: World Bank)

HSBC's greater China economist John Zhu, said analysts at the bank have always seen China's stimulus drive as "targeted" and said it was even slightly inaccurate to call it stimulus.

"It's more of a fine-tuning rather than a big stimulus move like you might see when a country is facing recession," said Zhu, who said the allocation of fiscal funds to cleaner air technologies was an example of the kind of 'stimulus' the Chinese government does.

He added that the Chinese government was unlikely to react to market expectations and was more focused on analyzing the data to see if the stimulus was working.

"They don't need to make a big announcement, the truth will come out in the data," he said.

By CNBC's Katie Holliday: Follow her on Twitter @hollidaykatie