Investors hope for catch-up rally as Chinese stocks reopen – Financial Times

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Hong Kong’s Hang Seng Chinese Enterprise Index has risen nearly 5% over the past week, raising hopes for a comeback when the mainland’s stock exchange returns from a 10-day Lunar New Year holiday on Monday.

Traders and strategists say a recent rally in Chinese stocks has reignited some clients’ interest in the market after years of weakness, but trading in Chinese markets has been thin in recent days and foreign Some point out that institutional investors have largely stopped investing. bystander.

“There’s some buying, but at the same time there’s some selling,” said a head of trading at a Hong Kong-based investment bank. “Monday will be a tough test of the direction of the Chinese market.”

The reopening of Shanghai and Shenzhen exchanges in the Year of the Dragon is a closely watched litmus test of global investor demand for Chinese stocks, which have been hurt by slowing economic growth and continued woes in the real estate sector. It will be.

China’s benchmark CSI300 index had fallen more than 9% year-to-date as of early February, but rebounded sharply just before the holidays, limiting the annual decline to just 2% by the close on February 8th. . .

But the index is still down more than 40% from its peak in early 2021, with index provider MSCI last Wednesday dropping its benchmark MSCI China Index by 66 points after a prolonged decline in share prices for the country’s largest listed companies. announced plans to remove constituent stocks. .

Strategists said much of the pre-holiday rally in Chinese stocks was due to China’s so-called “national team” of state-run financial institutions, which are expected to resume buying stocks at the behest of the Chinese government when markets reopen on Monday. Ta.

“In the short term, I think national team buying will continue to support the market,” said Shi Fu, China equity strategist at Goldman Sachs. We predicted that the focus would be on investment trusts. benchmark.

He said that although clients around the world have recently become more interested in Chinese stocks, the expectations of global investors for the Chinese stock market are uncertain ahead of next month’s “two meetings” in which top leaders will gather in Beijing. It remains “very low,” he said. He set China’s national political agenda for next year.

“what [investors] “We would like to see more comprehensive mitigation measures that truly address real estate and local government debt issues,” she said. “But that’s not what’s expected.”

Analysts say the sustained rise in Chinese stocks, after multiple false starts over the past year, will require policymakers to grapple with the country’s real estate market crisis and the looming debt mountain faced by local governments. said it was necessary.

“We may already be beyond the point where one big announcement can reverse market sentiment,” said Liu Mingyue, investment specialist in Asian and global emerging market equities at BNP Paribas Asset Management. Ta.

“They need to show continued support and implement further policies announced on the real estate and local government debt fronts,” Liu added. “The Chinese market is certainly not out of the woods yet.”