HONG KONG – Chinese markets soared and the yuan rose on Friday, with about US$1 trillion (S$1.4 trillion) added to the value of Chinese stocks in a week, as rumours and news reports fed hopes for twin relief in US-China tension and China’s tough Covid-19 rules.

The Hang Seng surged 5.3 per cent and notched its biggest weekly gain in 11 years. The Shanghai Composite rose 2.4 per cent for a 5.3 per cent weekly gain, the largest in more than two years, and China-sensitive assets around the world rose sharply.

Bloomberg News reported initial US inspections of audit papers at US-listed Chinese companies - a long-running point of regulatory tension and risk - finished ahead of time, raising hopes that US officials were satisfied.

Unsubstantiated social media posts flagging an aim to relax Covid-19 rules in March have also 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 Ms Peiqian Liu, China economist at NatWest Markets in Singapore.

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.

Shares in online giants Alibaba and JD.com each rose more than 10 per cent, and the Hang Seng Tech index rose 7.5 per cent. Property manager Country Garden Services rose 15 per cent and an index of mainland developers rose 9 per cent.

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,” he 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 US$1 trillion. However, the Hang Seng remains down 30 per cent this year against a 24 per cent fall in world stocks. The Shanghai Composite is down 15 per cent this year.

The rally extended to commodities markets, with iron ore futures surging on Friday, and China-sensitive stocks listed in London and Europe.

Miners such as Rio Tinto and Anglo American rose sharply, along with luxury retails like LVMH and Swiss jeweller Richemont.

Buy the rumour

Changes to Covid-19 policies have not been officially flagged. 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-19 curbs in March.

Bloomberg News reported on Friday, citing unnamed people familiar with the matter, that China was working towards relaxing rules that penalise airlines for carrying Covid-positive passengers.

A foreign ministry spokesman later said he was not aware of the report and that China’s Covid-19 policies were consistent and clear.

An early conclusion to 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 China’s Communist Party Congress.

“I do not see anything new that has changed the Hong Kong and China investment environment,” said Mr Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong.

“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,” he said.

The Chinese currency joined in the rally, jumping more than 0.5 per cent to touch a one-week high of 7.234 per US dollar. REUTERS