(Bloomberg) — Chinese stocks listed in Hong Kong rose by the most in nearly two years, as traders returned from the holidays, fueling stimulus-fueled euphoria.
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The Hang Seng China Enterprises (^HSCE) index rose by up to 8.5%, extending its winning streak to 13 consecutive days. Real estate developers led the gains, with the index tracking the sector rising as much as 35%, an intraday high, while the brokerage index, a barometer of risk sentiment, rose 32%. Mainland Chinese markets will be closed for a week-long holiday until October 8th.
“Hedge funds and mutual funds that were previously underexposed are now flowing into Chinese assets,” said Billy Leung, investment strategist at Global X Management in Sydney. “These developments are underpinned by a broad reversal in key markets such as copper and Asia-Pacific currencies, driven by renewed optimism about China's growth.”
Sentiment towards stocks in the world's second-largest economy has seen a dramatic upturn since early last week, as authorities announced a series of stimulus measures including lower interest rates, freeing up cash to banks and supporting stock liquidity. are. . Four major cities also eased restrictions on home purchases, and the central bank moved to lower mortgage interest rates.
There is widespread optimism that the blitz of economic stimulus has ended a three-year slide in Chinese stocks caused by economic stagnation and a multi-year real estate crisis. Still, there have been some false dawns, most recently the bull market that started in February, so there's good reason for investors to remain cautious.
So far, attractive valuations in Chinese stocks have helped attract investors after a long period of decline.
Despite the recent surge, the Hang Seng China Enterprise Index still trades at less than nine times expected earnings for the next 12 months, according to data compiled by Bloomberg. Not enough.
Brokers ramped up operations on Wednesday amid optimism that they will be the main beneficiaries of the stock trading frenzy as they collect commissions on all trades. China Merchants Securities rose as much as 76%, while Gualian Securities rose nearly 50%.
Hedge funds are adding to Chinese stocks at an unprecedented pace, according to Goldman Sachs Group. Leveraged funds made record net purchases of Asian stocks in September, led by China and Hong Kong, according to data from the investment bank's Prime Brokerage Desk.
Billionaire investor David Tepper has been buying “everything” related to China, and the world's largest asset manager, BlackRock, is now overweight in Chinese stocks. U.S.-based Mount Lucas Management has taken a bullish position in Chinese exchange-traded funds (ETFs), while Singapore's GAO Capital has been buying large-cap Chinese stocks.
Bo Pei, an equity research analyst at US Tiger Securities, said, “If subsequent policy measures exceed expectations, I think the bull market will continue for three to six months,'' adding, “A correction amidst such a sharp rise is unlikely. It's not uncommon.” What matters is whether it can continue to rise even after the adjustment. I'm pretty confident myself. ”
The impact of rising stock prices is also reflected in the foreign exchange market.
A measure of one-month borrowing costs in Hong Kong dollars rose for the eighth day in a row to hit its highest level since August, a sign of tight liquidity amid seasonal cash demands and soaring stock prices. The Hong Kong currency strengthened near the upper end of its trading band, and the offshore yuan also appreciated.
The stock rally has been so strong that in just eight days, China has regained the weight it lost in emerging market indexes over the past 10 months.
The country's share in MSCI's emerging market equity benchmark rose to 27.8% at the end of September, the highest since November 2023, according to data compiled by Bloomberg based on stocks listed on mainland, Hong Kong and overseas markets. reached a high level. .
Chinese stocks have led gains in global equity benchmarks over the past month. The Hang Seng China Enterprise Stock Index was the top with a 31% increase, while the Hang Seng Index was in second place with a 28% increase.
“We view China's economic outlook more positively,” Sylvia Shen, global multi-asset strategist at JPMorgan Asset Management, said in a note to clients. “Positive signals from the Chinese government and regulators and increased focus on supporting economic growth and stabilizing the real estate sector should help set a floor for market prices and foster stock market momentum. ”
—With contributions from John Cheng and Tian Chen.
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