(Bloomberg) — Chinese stocks had their biggest two-day advance since 1998 as Beijing’s strong push to stabilize financial markets and stimulate the economy lured buyers back after a relentless selloff.
The Hang Seng China Enterprises Index rallied 7.5%, with technology and property shares among the top gainers after officials promised to ease a regulatory crackdown and pledged support for companies in the sectors. That followed an almost 13% jump in the previous session for the gauge of Chinese firms listed in Hong Kong.
Beijing’s vows have spurred a sharp turnaround for stocks after what seemed like a bottomless decline. Investors are expecting authorities to follow up their words with concrete action after news that China will not expand a trial on property taxes this year and a separate move aimed at reducing the cost of trading for equity investors. Optimism is also growing that Hong Kong will review its strict Covid policies.
“Beijing is rolling out the most concerted effort since Nov. 2018 to restore market confidence,” Morgan Stanley analysts including Robin Xing wrote in a note. “Pathways are forming” for a turnaround of the housing and Covid policy, they wrote.
A meeting of China’s top economic officials concluded that the government should “actively introduce policies that benefit markets.” China’s banking regulator said it would support insurance companies to increase investment in stock markets, while the central bank also vowed to ensure market stability.
Those commitments followed a brutal selloff earlier this week on mounting concern that Beijing’s close ties with Russia could spark new U.S. sanctions on China.
The financial committee meeting has also fanned expectations that the People’s Bank of China will lower the amount of cash banks must keep in reserve, like it did in 2018 and July last year soon after the committee met. A growing number of economists also see banks lowering their quotes for the loan prime rate, the de facto benchmark lending rate, when it’s announced by the PBOC Monday.
China Expected to Follow Up Easing Pledge With Concrete Steps
Positive signals sent by the state council may mark a “policy bottom” for Hong Kong stocks after a year-long selloff, said Margaret Yang, a strategist at Daily FX.
Issues Remain
That said, many investors are debating how sustainable this rebound can be, given that several concerns remain — including the risk of possible U.S. sanctions on China given its close ties with Russia, sluggishness in the property market and the potential of foreign outflows due to the Federal Reserve’s rate hikes.
“I don’t think yesterday’s statements are a game changer in itself, but if they signal a change in policy and we see further statements in this direction, it could put a floor under the market,” said Joshua Crabb, a fund manager at Robeco Hong Kong Ltd. “There are several other issues at play like Covid-19, geopolitics that also need to be considered.”
READ: China Investors Need More Than Words to Find Faith in Markets
The U.S. accounting watchdog insisted on Wednesday that Beijing should provide complete access to audits of Chinese companies that trade in New York, suggesting the risk of delisting from American exchanges — a key concern for investors — still lingers.
“I expect U.S.-China tensions to intensify,” said Wang Shenshen, senior strategist at Mizuho Securities Co. in Tokyo. “The confrontation between the two countries is shifting from trade to finance, which is starting with the issue of Chinese ADR listings, but I don’t know where and how far it is going from there.”
Foreign Buying
Meanwhile, foreign investors turned net buyers of Chinese shares for the first time since March 4, buying a net 5.4 billion yuan ($850 million) of mainland stocks via trading links with Hong Kong.
History shows the verbal intervention, coupled with possible follow-up policy support, can mark a market bottom. In the past seven instances where Liu He, China’s vice premier, commented about “capital markets” at financial stability meetings, the mainland benchmark CSI 300 Index typically stabilized over the subsequent six-month periods, with a median return of 19%, according to Bloomberg calculations.
The Hang Seng Tech Index ended 7.8% higher after a dizzying 22% gain on Wednesday. Still, the gauge is down almost 60% from its February 2021 peak owing to a yearlong crackdown on the sector.
A Bloomberg Intelligence gauge of Chinese property developers climbed a record more than 16% on Thursday.
Chinese junk-rated dollar bonds, dominated by builders, jumped 2 cents on the dollar, a relatively muted move given more than half of junk-rated developers are trading at less than 50 cents. Still, some dollar bonds from Country Garden Holdings Co. and CIFI Holdings Group Co. were poised to post record gains of more than 15 cents on the dollar.
“Details of how and what will be deployed to stabilize the market and combat the challenges to property developers are still unclear,” said Arthur Lau, head of Asia ex-Japan fixed income at PineBridge Investments Asia Ltd. Liquidity support for property developers, as well as improving property sales, are needed to take on a more constructive view on the fundamentals, he said.
In the currency market, the offshore yuan rose against the dollar for a third straight day.
Thursday’s gains in China and Hong Kong also came amid a broad rally in global equities after the Federal Reserve hiked rates as expected and Chair Jerome Powell assured that the U.S. economy won’t tip into recession. The CSI 300 Index advanced 2%, paring losses this year to 14%. A measure of U.S.-listed Chinese shares soared the most since at least 2001 overnight.
“In the short term, it’s fund flow and liquidity that’s driving up the whole market, on the back of such a cheap valuation level,” said Kenny Wen, a strategist at Everbright Sun Hung Kai Co. “But whether the market can keep rallying is really up to the regulatory environment and corporate earnings recovery story.”
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
