Chinese stocks listed in the US surged on Tuesday, fueled by speculation that Beijing is preparing to phase out Covid Zero policies — even as the nation’s Foreign Ministry said it was unaware of such a plan.
(Bloomberg) — Chinese stocks listed in the US surged on Tuesday, fueled by speculation that Beijing is preparing to phase out Covid Zero policies — even as the nation’s Foreign Ministry said it was unaware of such a plan.
The Nasdaq Golden Dragon Index of 65 Chinese companies closed up 3.8% in New York, after jumping as much as 7.6% during the session. Stocks tied to economic reopening like online travel agency Trip.com Group Ltd. and hotel operator H World Group Ltd. leading the gains, advancing 8.4% and 11% respectively. Shares of internet giants including Alibaba Group Holding Ltd. and JD.com Inc. rose more than 3% each.
Optimism that China may ease its zero-tolerance approach toward the pandemic offered timely relief to the nation’s US-listed shares, which fell to a nine-year low last week amid President Xi Jinping’s push to tighten his control over the government. Investors have been desperate for less-restricted activity to spur growth in China’s economy, which has been hampered by weak consumption and an ailing housing sector.
“Today’s move is a combination of people buying the market and probably some short covering,” said Sharif Farha, head of investments at HB Investments, referring to speculators reversing a recent wave of bearish bets. “Whether the rally sustains or not will be dependent on if China’s Covid Zero policy is officially over.”
Traders latched onto unconfirmed social media posts that China is forming a committee to assess scenarios for relaxing its uncompromising responses to the pandemic, a stance long seen as a key risk for the country’s stocks. The committee has set a target for reopening of March next year, according to the posts. In response, Foreign Ministry spokesman Zhao Lijian said he’s “not aware” of any such committee.
“I’m not surprised to hear rumors about a more formal approach” to walk back some Covid Zero policies, said Charlie Wilson, a portfolio manager at Thornburg Investment Management. “It’s impossible to run an economy of that size with periodically locking down. It’s not sustainable.”
Wilson had an overweight position in Chinese stocks for his $935 million emerging-market portfolio as of the end of September. He said he expects more announcements on economic reopening as new government leaders assume roles at regional and local levels.
The reopening speculation boosted stocks from New York to Johannesburg to London on Tuesday. European luxury stocks such as Hermes International and Richemont rose, as did tech investor Naspers Ltd. and its unit Prosus NV. In the US, casino stocks and cruise operators including Melco Resorts & Entertainment Ltd, Las Vegas Sands Corp and Carnival Corp also gained.
Some investors, though, are still wary, especially given that the world’s No. 2 economy has previously reiterated its commitment to stringent Covid restrictions.
In fact, the country ramped up its lockdowns after the Party Congress ended due to rising Covid cases, although the central city of Zhengzhou — home to the world’s biggest iPhone plant — started to loosen some control measures on Tuesday, according to a local government statement.
“One must be cautious about investing on speculation, particularly because much positive speculation about China Internet in recent months has proven unfounded,” said Adam Montanaro, investment director of global emerging-market equities at Abrdn.
Still, the strong share-price reaction shows that many Chinese stocks “have substantial upside in the event the rumors of an exit from zero Covid translate to reality,” he said.
(Updates with share moves, chart at close and adds Thornburg’s commentary in sixth and seventh paragraphs.)
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