HONG KONG – Chinese stocks roared back from a rout and the yuan strengthened as speculation mounted that policymakers are making preparations to gradually exit stringent Covid restrictions.
The Hang Seng Tech Index jumped as much as 9.3 per cent on Tuesday, while a stock gauge tracking Chinese companies listed in Hong Kong rose more than 6 per cent, bouncing back from its lowest close since late 2005. Hong Kong’s Hang Seng Index soared over 6 per cent while the CSI 300 Index of onshore shares gained more than 3 per cent.
Stocks extended gains in the afternoon as an unverified social media post circulated online that a committee was being formed to assess scenarios on how to exit Covid Zero. The advance comes after a heavy bout of selling following the Communist Party congress, where President Xi Jinping’s power grab led to expectations that Covid Zero and other market-unfriendly policies will likely persist.
“I think the market’s reaction shows how much anticipation there has been for the reopening in the market,” said Hao Hong, partner at Grow Investment Group.
Tuesday’s stock market gains were led by reopening names, including travel companies. To be sure, markets have rallied on such speculation in the past as well, only to be left disappointed as China continued to pursue Covid Zero.
The nation has been doubling down on its zero tolerance approach on Covid following the Party congress, locking visitors to Shanghai Disneyland and spurring an exit by workers at Foxconn Technology Group’s plant after hastily-imposed restrictions.
Still, the extent of market reaction based on the speculation underscores how strongly investors have been yearning for a pivot from Covid Zero.
The onshore yuan rose as much as 0.7 per cent after falling to a 15-year low earlier in the session. The yield on 10-year government bonds rose three basis points to 2.67 per cent, ending four straight days of declines.
“Efforts to resuscitate consumption and attract foreign investments cannot be done without some form of re-opening,” said Fiona Lim, senior foreign exchange strategist at Malayan Banking in Singapore. “Any confirmation by authorities to ease up on Covid-Zero would probably strengthen yuan significantly.” BLOOMBERG
