(Bloomberg) — Chinese stocks and the domestic yuan rose on the return from the holidays, buoyed by the Chinese government’s supportive policy stance and signs of continued recovery in consumption.
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The CSI300 index rose as much as 1.8% on the first trading day of May, with the information technology and consumer staples sectors leading the gains. This gauge achieved top performance in Asia. The MSCI Asia-Pacific index rose 0.3%.
The increase follows gains seen offshore when mainland markets were closed for a public holiday from Wednesday to Friday. During this period, the Nasdaq Golden Dragon China Index rose 8.5%, and the Hang Seng Index of Chinese stocks rose 4.4% in the two days to Friday.
On the currency front, the offshore yuan had its best week of the year as the onshore yuan tracked its appreciation and the dollar weakened.
“Overseas markets, including Hong Kong, were strong last week, so there’s probably an element of catch-up,” said Shin Yao Ng, investment director at Abdon. “Travel data released over the holidays looked good as well.”
Tattered Chinese assets are being reassessed as recovering earnings, policy support and cheap valuations attract investors. The latest trigger was a Politburo meeting just before the trading break, where top Chinese leaders vowed to explore new measures to tackle the lingering housing crisis and hinted at the possibility of further interest rate cuts.
Shen Meng, director of Chanson & Company, said: “The important meeting held before the holidays made clear the goal of continuing to deepen reform and widen opening up, which will improve the onshore stock market in the short term. It will help increase the.” Consumption trends during the holidays also raised expectations for a recovery in consumption. ”
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Foreign funds are also returning to Chinese and Hong Kong stocks, but whether this is a tactical rebound or a more sustainable re-rating remains up for debate. Bank of America Securities said the worst of capital outflows was over, while strategists at UBS Group said profits in mainland-listed stocks were likely to bottom out in the first quarter. .
Overseas funds increased their holdings of mainland stocks for three consecutive months in April, the longest buying streak in a year. The rally in Hong Kong stocks during the Labor Day holiday, when Chinese investors were inactive, suggests strong demand for global money.
As the recovery drags on, investors will be looking for hard evidence of a rebound in consumption in holiday season data. Chinese tourists headed overseas for the Labor Day holiday in May at levels close to pre-pandemic levels, data provider ForwardKeys said. The number of Chinese tourists in Hong Kong surged by more than 20% during the holidays.
“To sustain the rally, we need May holiday consumption data to meet expectations,” said Jikai Chen, head of Asia and global emerging markets equities at BNP Paribas Asset Management Asia. . Consumers may be pulling back and becoming more cautious. ”
China’s main stock indexes are expected to rise this month, supported by easy monetary policy overseas, inflows from abroad and positive economic indicators, the Shanghai Securities News reported, citing analysts. Listed companies are increasing their dividends to attract investors, and the amount of dividends in fiscal 2023 will account for 42% of the company’s total annual net profit attributable to shareholders.
Monday’s trading will be the first in mainland stocks to react to the Politburo’s statement released after the market closed on Tuesday. Analysts are broadly positive, with Chinese real estate stocks in Hong Kong rising after authorities said they would look for ways to deal with unsold properties. They also called for expediting the issuance of special sovereign bonds and special local government bonds, which are a major source of financing for infrastructure projects.
The onshore yuan rose 0.4% to 7.2114 yuan on Monday after the People’s Bank of China set the yuan’s daily benchmark rate higher than the previous session. The offshore yuan fell 0.3% against the US dollar on Monday after hitting its highest level since mid-March on Friday.
The dollar has fallen from recent highs as the Federal Reserve’s latest decisions were deemed less hawkish than feared.
Ken Zhang, chief Asian currency strategist at Mizuho Bank, said he expected the China summit to come up with “more comprehensive long-term reforms and policies to address some of the structural challenges of the Chinese economy.” has increased,” he said. He said the renminbi’s appreciation could be prolonged in the short term in parallel with the dollar’s depreciation as foreign investors become less bearish on Chinese assets.
–With assistance from Sangmi Cha and Zhu Lin.
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