China stock rally extends to second day on reopening speculation

Singapore – Chinese stocks rallied for the second day as traders responded to growing speculation that the authorities are preparing for a gradual loosening of harsh Covid-19 restrictions.   

The Hang Seng China Enterprises Index gained as much as 3.2 per cent, reversing earlier losses, adding to a 5.5 per cent surge in the previous session. Reopening stocks including vaccine makers, airlines and casino shares jumped, with CanSino Biologics up as much as 61 per cent in Hong Kong.

The Hang Seng Index advanced as much as 2.7 per cent while China’s CSI 300 Index rose nearly 2 per cent, following a 3.6 per cent gain on Tuesday.

The market frenzy was first triggered on Tuesday by unverified social media posts circulating online that a committee was being formed to assess ways to exit Covid Zero. Another unconfirmed document made its rounds on Wednesday, mentioning that China is expected to hold a meeting on Friday to announce a slew of changes including shortening mandatory quarantine. 

Beijing’s pursuit of Covid Zero has been the biggest concern for investors, making the market sensitive to the slightest signs of a change in the policy. Covid-19 curbs and lockdowns have pushed China stock measures to among the world’s worst this year, with last month’s Communist Party congress dashing hopes of an imminent reopening.   

“It’s hard to tell whether the rumours are true or not, to be honest. But at least this time, there’s a mention of timing of this Friday,” said analyst Willer Chen at Forsyth Barr Asia. “The market may continue the rebound till Friday or next Monday.” 

President Xi Jinping defended his zero-tolerance approach to Covid-19 during last month’s leadership gathering and promoted his loyalists to top posts. This gesture dismayed some investors who had been positioning for a reopening signal from the political event, triggering an intense sell-off. 

On Tuesday, Chinese Foreign Ministry spokesman Zhao Lijian said he was “not aware” of a committee to assess Covid Zero exit scenarios, which helped pare stock gains near the market close.  

“People may have misunderstood when they see the headline that it is about completely opening up, but in our view it is quite unlikely for China to completely abandon Zero Covid,” said senior credit analyst Zerlina Zeng at CreditSights. “It is politically sensitive to do away with it because during the party congress, the rhetoric around Zero Covid has been so strong.” Bloomberg