About a trillion dollars have been added to the value of Chinese stocks this week, as rumours and news reports raised hope for the easing of China’s tough Covid curbs and improved relations with the United States.
The gains came amid reports that initial US inspections of audit papers at US-listed Chinese companies — a long-running point of regulatory tension and risk — finished ahead of time, suggesting that US officials were satisfied.
The Hang Seng surged 5.3% and notched its biggest weekly gain in 11 years. And the Shanghai Composite rose 2.4% for a 5.3% weekly gain, the largest in more than two years and China-sensitive assets around the world rose sharply.
Gains were broad, defying a downbeat mood in global markets weighed by the prospect of US interest rates rising further than previously expected. Property and tech shares led the way.
China’s yuan also joined in the rally, jumping more than 0.5% to touch a one-week high of 7.2340 per dollar.
Rumours flip oversold market
Unsubstantiated social media posts on a possible end to China’s stringent Covid lockdowns have driven optimism all week and seemed to get new momentum on Friday.
“The optimism right now is basically a removal of certain types of uncertainties that have been lingering … but the outlook is really mixed,” said Peiqian Liu, a China economist at NatWest Markets in Singapore.
The Hang Seng Tech index rose 7.5%. Property manager Country Garden Services rose 15% and an index of mainland developers rose 9%.
Hedge fund manager Lei Ming said the re-opening rumour is just the trigger for a rebound in an oversold market.
“Such an expectation has been there for some time,” Lei said. “The main reason for the market jump is that selling pressure had been exhausted after the market fell so much.”
Gains in value, across Hong Kong, Shenzhen and Shanghai over the week are approximately $1 trillion.
A foreign ministry spokesman said on Tuesday he was not aware of the situation, when asked about rumours on social media that China was planning a reopening from strict Covid curbs in March next year.
Officials also reiterated that China’s Covid policies were consistent and clear.
An early conclusion on audit checks has also not been confirmed by either Chinese or US officials. Yet markets have desperate reasons to rally after the Hang Seng hit a 13-year low last month in the wake of Chinese Communist Party’s 20th Congress.
The Hang Seng remains down 30% this year against a 24% fall in world stocks. The Shanghai Composite is down 15% this year.
“I do not see anything new that has changed the Hong Kong and China investment environment,” Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said.
“The only explanation I have is that the sell-off has been excessive post-Congress, valuation on some offshore names has been very distressed, and there is some bottom-fishing.”
- Reuters, with additional editing by Vishakha Saxena