Chinese stocks are set to advance Tuesday after US-listed shares of mainland companies recorded their biggest one-day gain since early February, spurred by vows from Beijing of further support for the nation’s struggling economy.
(Bloomberg) — Chinese stocks are set to advance Tuesday after US-listed shares of mainland companies recorded their biggest one-day gain since early February, spurred by vows from Beijing of further support for the nation’s struggling economy.
The Nasdaq Golden Dragon China Index climbed 4.3% Monday, with big-cap technology names including Alibaba Group Holding Ltd. and Baidu Inc. rising 5% or more. KE Holdings Inc., a housing transactions platform operator, jumped nearly 7%, the most since January. Future contracts on Hong Kong’s benchmark Hang Seng Index rallied about 3%, while FTSE China A50 futures gained 1.5%.
While stopping short of announcing any broad-scale stimulus measures, the ruling Communist Party’s top decision-making body promised “counter-cyclical” policy, according to a readout published Monday. It also signaled more support for the country’s troubled housing market, amid a slew of data indicating that China’s post-Covid recovery has lost momentum.
READ: China Holds Off on Major Stimulus as It Signals Property Easing
The Politburo meeting earlier “was more dovish than expected, promising housing easing, local debt resolution, and a boost to capital markets,” wrote Morgan Stanley economists led by Robin Xing in a note to clients. This could be a “defining moment,” akin to October 2018, they added. “We thus expect further relaxation of home purchase restrictions in Tier-1 cities, to release pent-up demand and stabilize market expectations.”
The Wall Street bank now expects a meaningful growth rebound in the fourth quarter, keeping full-year economic expansion at the government’s target of 5%.
Meaningful Rebound
The Nasdaq Golden Dragon gauge’s move showcases a more positive response to the Politburo meeting from US investors, who have been selling Chinese stocks this year. Market watchers in Asia were less sanguine in their immediate response to the readout on Monday, saying policy signals fell short of expectations.
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Analysts have said that Chinese stocks are prone to sharp rebounds as they trade at depressed valuations. The MSCI China Index is at about 10 times its forward one-year earnings, a multiple that is one standard deviation below its five-year average level.
The rally in Chinese ADRs came after a 2.1% drop in the Hang Seng Index on Monday, led by declines in property builders, after analysts at JPMorgan Chase & Co. turned bearish on Country Garden Holdings Co. due to liquidity concerns.
The 24-member Politburo left out the slogan of “housing is for living, not for speculation” in the readout, a sign to market watchers that authorities may be considering easing restrictions on the industry.
“The markets are set to respond” to the latest news out of the meeting even without detailed measures being announced, said Hao Hong, chief economist at Grow Investment Group. “Removal of the ‘housing isn’t for speculation’ slogan is significant,” he added, “but investors need to know how this can be followed through in policy.”
‘Equilibrium Level’
The onshore Chinese yuan finished Monday at 7.1874 per dollar, little changed from last week’s close. The offshore yuan erased earlier losses of as much as 0.4%.
The politburo statement mentioned keeping the renminbi exchange rate “mostly stable at the equilibrium level” for the first time since the second quarter of 2021, potentially signaling Beijing’s unease with its rapid depreciation in recent months, according to Citigroup Inc. economists led by Xiangrong Yu.
The Chinese currency has so far this year ranked among the worst performers in emerging markets.
“While this policy course correction is long overdue, it is more likely to improve corporate and consumer confidence than any traditional stimulus, because it is designed to address concerns that President Xi Jinping is no longer supportive of entrepreneurs,” said Andy Rothman, an investment strategist at Matthews Asia.
Xi will follow up with concrete actions, according to Rothman, who urged investors to be patient as there’s likely to be more evidence of a gradual, consumer-led economic recovery in the coming quarters.
–With assistance from George Lei.
(Updates prices, adds mention of Asia response Monday in the sixth paragraph.)
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