(Bloomberg) — Chinese stocks climbed, adding to Wednesday’s stunning surge, as Beijing’s strong push to stabilize financial markets lured buyers back after a relentless equity selloff.
The Hang Seng China Enterprises Index rose as much as 8.2%, 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. On Wednesday, the gauge of Chinese firms listed in Hong Kong posted its biggest advance since 2008.
As Beijing’s vows spur a sharp turnaround for stocks after what seemed like a bottomless decline, investors are debating how sustainable this rebound can be. Among their key concerns are China’s stringent Covid-linked curbs, potential capital outflows due to the Federal Reserve’s rate hikes, possible political backlash due to the nation’s close ties with Russia, and a sluggish property market.
“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 Hang Seng Tech Index was up 6.4% after a dizzying 22% gain on Wednesday. Still, the gauge is down nearly 60% from its February 2021 peak owing to a yearlong crackdown on the sector.
Meanwhile, 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
Still, foreign investors are on the way to becoming net buyers of Chinese shares for the first time since March 4. They bought a net 5 billion yuan ($782 million) of mainland stocks via trading links with Hong Kong as of 2:43 p.m. local time.
In a concerted effort, 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.
The efforts came after the selloff in local equities worsened earlier this week on mounting concern that Beijing’s close ties with Russia could spark new U.S. sanctions on China.
History shows the verbal intervention, coupled with possible follow-up policy support, may mark a market bottom. In the past seven instances where Liu He, China’s top economic official, 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.
A Bloomberg Intelligence gauge of Chinese property developers climbed more than 15% on Thursday, the most ever. 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. Some dollar bonds from Country Garden Holdings Co. and CIFI Holdings Group Co. were poised to post record gains of more than 10 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.
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 more than 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.”
(Updates with more background on property and bonds)
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