Most Read by Bloomberg A flurry of market-friendly stocks — along with unverified talk that China is ready to exit its strict Covid Zero policy — led the Hang Seng China Enterprises Index to its best weekly gain since 2015. Led by tech names, the index soared 8.8% on Friday as Bloomberg News reported progress in efforts to prevent hundreds of Chinese stocks from being delisted from US exchanges. While similar rallies have fizzled in recent months, bulls are betting that some of the world’s lowest valuations have left Chinese stocks poised for a rally at any hint of good news. The danger is that they could get ahead of themselves, especially after the country’s top health agency reaffirmed its commitment to Covid Zero. “It appears that markets are very sensitive to positive news – whether big or small – as a potential catalyst for Chinese stocks,” said David Chao, global market strategist for Asia-Pacific ex-Japan at Invesco Ltd. on valuations and the fact that much of the bad news has been baked into these stocks, investor sentiment is more bullish than negative.” The wild recovery comes just a week after the historic crash sparked by worries about a power grab by President Xi Jinping at the Communist Party congress. And while those losses came after a carefully orchestrated leadership session, gains in recent days — after four months of losses for the major indexes — led to a trickle of reopening rumors. The story continues “Rebounds from short-term compression tend to be short-lived and many foreign investors are still looking to sell because they are unsure about the outlook,” said Grace Tam, chief investment adviser for Hong Kong at BNP Paribas Wealth Management. “For investors who don’t mind volatility, exposure and consumption makes sense, but you have to be able to tolerate the risk.” Read: How a Mysterious China Screenshot Sparked a $450 Billion Rally Recovering nearly 9% this week, Hong Kong’s Hang Seng Index posted its best gain since 2011. The CSI 300, the benchmark for mainland shares, also jumped more than 3% on Friday. The Nasdaq Golden Dragon China Index of US-listed Chinese stocks is also up 7.5% in the first four days of trading. Optimism spread to currency and commodity markets, with the offshore yuan rising more than 1% at one stage, while iron ore futures rose. Dollar bonds of Chinese technology companies had also sold off in recent weeks, but their spreads narrowed by about 10 basis points on Friday, according to credit traders. Reopening-related stocks such as Li Ning Co. and Haidilao International Holding Ltd., were among the big gainers in the market. China is working on plans to scrap a system that penalizes airlines for bringing virus cases into the country, Bloomberg News also reported. Internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. were up at least 7% each at the close. Dozens of inspectors from the U.S. Accounting Firm Oversight Board are set to leave Hong Kong as soon as this weekend, ahead of the original mid-November schedule, people familiar with the matter told Bloomberg News, asking not to be identified because the information is private. . . The sudden rise has caught short sellers, who had earlier bought contracts to take advantage of a deeper fall in the Hang Seng China Enterprises index. However, the feeling of good mood has not stopped the outflow of foreign capital. There were 5 billion yuan ($687 million) in net sales this week through trade ties with Hong Kong, up from 13 billion yuan last week, according to data compiled by Bloomberg. “With so much positive chatter in the market, the indices are showing a relief rally,” said Willer Chen, analyst at Forsyth Barr Asia Ltd. “There are so many rumours. Nothing is confirmed, but people buy this advice.” –With help from Abhishek Vishnoi, Dorothy Chan, Charlotte Yang and John Cheng. Most Read from Bloomberg Businessweek ©2022 Bloomberg LP
