(Bloomberg) — Chinese stocks listed in Hong Kong jumped the most in nearly two years, adding to stimulus-induced euphoria as traders returned from a public holiday.
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The Hang Seng China Enterprises Index rose as much as 8.5%, extending its winning streak to 13 straight days. Real estate developers led gains on a gauge that tracks the sector, jumping as much as 35%, a record advance for the day, while the brokerage stock index, a measure of risk appetite, jumped 32%. Mainland Chinese markets remain closed until October 8 for a week-long holiday.
“Hedge funds and mutual funds, which were previously exposed, are now moving into Chinese assets,” said Billy Leung, investment strategist at Global X Management in Sydney. “These moves are supported by a broader reversal in key markets such as copper and Asia-Pacific currencies, driven by renewed optimism in China’s growth.”
Sentiment towards stocks in the second largest economy in the world has witnessed a radical shift since the beginning of last week, as the authorities revealed a set of stimulus measures that included interest rate cuts, freeing up cash for banks, and supporting liquidity for stocks. . Four major cities also eased restrictions on home purchases and the central bank moved to lower mortgage interest rates.
There is growing optimism that the stimulus campaign has put an end to a three-year decline in Chinese stocks that was driven by the faltering economy and a multi-year real estate crisis. However, there have been a number of false dawns, most recently the rally that began in February, so investors have enough reasons to remain cautious.
So far, attractive valuations for Chinese stocks after a prolonged decline are helping attract investors.
Even with the recent rise, the Hang Seng China Enterprises Index is still trading at less than nine times estimated earnings for the next 12 months, less than half the S&P 500, data compiled by Bloomberg show.
Brokerages filed on Wednesday amid optimism that they will be among the main beneficiaries of the stock trading frenzy as they earn a commission on every trade. China Merchants Securities Co. shares rose as much as 76%, and Guolian Securities Co. shares rose about 50%.
Hedge funds are piling into Chinese stocks at an unprecedented pace, according to Goldman Sachs Group Inc. Leveraged funds made record net purchases of Asian stocks in September, led by China and Hong Kong, based on data from the investment bank’s prime brokerage desk.
Billionaire investor David Tepper is buying more of “everything” related to China, while the world’s largest money manager, BlackRock, is now increasing its weight in Chinese stocks. US-based Mount Lucas Management has entered into bullish positions on Chinese exchange-traded funds, while Singapore-based GAO Capital has been buying large-cap Chinese stocks.
“If subsequent policies exceed expectations, I think the bull market could last from three months to half a year,” said Bo Bai, equity research analyst at US Tiger Securities Inc. “A correction in the middle of such a sharp rise is not unusual. What is important is whether it can continue to rise after the correction. I personally am quite confident.”
The impact of rising stocks is also visible in the currency market.
A gauge measuring one-month borrowing costs in Hong Kong dollars rose for the eighth straight day to the highest level since August, a sign that liquidity is becoming tighter amid seasonal demand for cash and rising stocks. Hong Kong’s currency rose to trade near the strong end of its trading range, and the yuan strengthened offshore as well.
The rise in stocks was so strong that, within just eight days, China regained the weight in emerging market indices that it had lost over the previous ten months.
The country’s share in MSCI’s index of developing country stocks rose to 27.8% at the end of September, the highest level since November 2023, according to data compiled by Bloomberg based on those stocks listed in the mainland, Hong Kong and overseas markets. .
Chinese stocks led gains in global stock indices over the past month. The Hang Seng China Enterprises Index was the best performer with a gain of 31%, while the Hang Seng Index came in second with a gain of 28%.
“We are turning more positive on China’s economic outlook,” Sylvia Sheng, global multi-asset strategist at JPMorgan Asset Management, wrote in a note to clients. “Positive signals from the Chinese government and regulators, and their increasing focus on supporting economic growth and stabilizing the real estate sector should help cap market prices and drive momentum in equity markets.”
-With assistance from John Cheng and Tian Chen.
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