China stocks jump as easing Covid-19 outbreak lifts sentiment

HONG KONG (BLOOMBERG)- Equities in China and Hong Kong rallied as declining virus cases on the mainland boosted sentiment and triggered dip-buying in the region's battered stock market.

The benchmark CSI 300 Index rose as much as 2.9 per cent on Wednesday (May 11), adding to its 1.1 per cent gain from the previous session. Stocks also climbed in Hong Kong, where a gauge of Chinese tech firms jumped as much as 6 per cent, poised to snap a five-day losing streak.

The advance was driven by signs that China's virus outbreak is easing. Shanghai reported a 51 per cent drop in new coronavirus infections on Tuesday from a day earlier, with zero cases found in the community. That moved the city closer to meeting a threshold for a relaxation of growth-crippling Covid-19 restrictions.

"A drop in Covid cases in Shanghai and increased expectations of policy impetus to buoy growth in the second half are factors working together at this stage," said partner at Beijing Gelei Asset Management Center Limited Partnership Du Kejun. "Longer-term funds could be buying the dip, while short-term money could also be getting more active to trade a technical bounce."

The nascent rebound is once again spurring hopes that the worst may be over for Chinese equities after a months-long sell-off triggered by Covid-19 lockdowns, regulatory crackdowns and rising global interest rates.

Policy measures and vows of market stability from authorities since mid-March have so far brought only fleeting gains. China's onshore market has a solid foundation for stable operation, according to a CCTV report on Tuesday citing China Securities Regulatory Commission.

Also adding to the buoyant sentiment is US President Joe Biden's comment that he and his advisers are weighing whether to cut US tariffs on foreign imports to fight inflation. "The latest remark from CSRC, coupled with the Covid situation in Shanghai, which seems to be more in control, and report of potential tariff relaxation from the US, may have boosted today's sentiment," said Mr Kevin Li, fund manager at GF Asset Management (Hong Kong).

China's smaller, tech-heavy ChiNext Index gained more than 5 per cent. In Hong Kong, the benchmark Hang Seng Index climbed as much as 2.3 per cent, the most this month. The onshore yuan also rose 0.1 per cent against the dollar, snapping a four-day losing run, after the central bank set a stronger-than expected yuan fixing rate. The offshore yuan also advanced at a similar pace.

China equities appear to be nearing the late stage of a bear market but the final leg will be bumpy, Morgan Stanley strategists wrote in a note, sticking to their equal-weight rating for now. Near-term volatility will remain elevated, given the uncertainties surrounding China's Covid-19 situation, global macro slowdown and monetary tightening, strategists including Ms Laura Wang wrote.

Down almost 20 per cent, the CSI 300 is still one of the world's worst-performing major national equity benchmarks. "More people are ready to bottom fish" given that losses have been so excessive, said fund manager at Lanqern Capital Management Huang Yuhang.