Tech Leads Chinese Stocks’ Rally in Hong Kong Ahead of Holidays

Charlotte Yang, Bloomberg News

A pedestrian reflected in a sign in Hong Kong, China, on Tuesday, Jan. 23, 2024. Asian stocks advanced, led by Hong Kong, on news that Chinese authorities are considering a rescue package to stem an extended market slump. Photographer: Paul Yeung/Bloomberg , Bloomberg

(Bloomberg) -- Chinese stocks advanced after a report spurred speculation that Beijing will expand its monetary-easing tools to boost the economy.

The Hang Seng China Enterprises Index gained the most in two weeks, while a gauge tracking Chinese tech shares rose as much as 4.4%. The South China Morning Post cited President Xi Jinping as having said the central bank should increase the trading of treasury bonds in its open market operations.

Chinese stocks have been under pressure in the past week after a series of earnings disappointments renewed doubts about the stuttering economy. Investors have been looking for more signs of policy support that would show how Beijing intends to achieve its 5% annual growth target announced earlier in March. Analysts though warned about an over-interpretation of Xi’s comments, with the gains paring in afternoon trading.

“The market is moving on expectations of further quantitative easing following the SCMP article,” said Steven Leung, executive director at UOB Kay Hian in Hong Kong. “But it doesn’t look like China will launch such a massive QE. It seems people just need an excuse to buy at these levels.”

The onshore benchmark CSI 300 Index had slipped 1.2% Wednesday, closing below the level set on the last trading day in February. The HSCEI gauge also came close to erasing this month’s gains before rebounding as much as 2.7% Thursday.

Overseas investors have bought around 3 billion yuan ($415 million) of onshore equities on a net basis via trading links with Hong Kong Thursday, after Wednesday saw the biggest one-day outflow in more than two months.

Some of the gains may also have been due to a stronger yuan reference rate set by the People’s Bank of China, as well as Xi’s meeting with US chief executive officers on Wednesday, according to Hao Hong, chief economist and partner at Grow Investment Group.

“On the media report, its credibility has to be seen as the PBOC didn’t buy any bonds in the past five months and the bond yield continues to make new lows,” Hong said. “If there is such order, it is highly unlikely that it hasn’t been executed.”

Xi’s remarks were contained in a book published this month. China should enrich its toolbox of monetary policies and the central bank should gradually increase the buying and selling of government bonds in its open-market operations, he was cited as saying. The snippet was taken from a speech — which was previously not fully disclosed — during a twice-a-decade financial policy meeting in October.

“We believe 2024 can surprise to the upside for offshore market given weak investor confidence, low valuations, and a low base,” Raymond Liu, China offshore equity strategist at HSBC Holdings Plc, wrote on the outlook for so-called H-shares in a research note. “We are convinced there are good long-term growth prospects for the offshore market, even as the overall market sentiment waits for a material uplift.”

Markets in Hong Kong will be shut for holidays on Friday and Monday.

--With assistance from Ishika Mookerjee.