China Markets Rally on Reopening Bets, More Property Measures

(Bloomberg) — Bets on China’s reopening again added fuel to the nation’s assets on Tuesday, as investors parsed the latest commentary for signs of further loosening of Covid restrictions.

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The Hang Seng China Enterprises Index gained 6.2%, while the offshore yuan jumped as much as 1.2% against the dollar. Property stocks rallied and the bonds of key developers advanced as authorities introduced fresh support measures for the ailing sector.

Markets were abuzz with hopes ahead of China’s Covid briefing in the afternoon, betting that weekend protests against harsh restrictions may accelerate the nation’s Covid Zero exit. As the briefing unfolded, investors cheered as health officials urged elderly vaccination and reiterated that excessive restrictions should be avoided.

Read more: China Aims to Boost Elderly Vaccination Amid Reopening Pressure

“It is becoming clear that the only path forward is moving toward reopening as the fatigue from prolonged restrictions is setting in,” said Marvin Chen, an analyst for Bloomberg Intelligence. “While the path to reopening will likely be bumpy, market sentiment can improve heading into 2023.”

Chinese assets have been facing a potential turnaround moment following moves to relax Covid restrictions and a slew of support measures for ailing developers. Key equity indexes are headed for the best month in years, though the outlook for China’s Covid Zero pivot is now unclear as the nation grapples with a worsening outbreak.

Goldman Sachs Group Inc. said Monday that the nation may have a messy, but earlier-than-expected exit from its Covid Zero policy.

Property Rescue

The property sector got another boost after the securities regulator lifted a multi-year ban on share sales by builders. The removal of restrictions aims to support the “stable and healthy” development of the sector, according to a statement late Monday.

Read: Turmoil Grips China Markets as Covid Protests Cloud Reopening

The government has been taking bolder steps recently to rescue the property sector, after its piecemeal approach earlier this year failed to reverse a slump. In another sign of easier funding access, a key program to guarantee local bond sales from developers will now accept collateral beyond just their core assets, according to people familiar with the matter.

Read: China Stocks Defy US Gloom on Optimism Over Earnings, Reopening

A Bloomberg Intelligence gauge of developers jumped more than 7%, taking this month’s advance to about 62%. The CSI 300 Index, a benchmark for mainland shares, ended up 3.1% in its best day in more than three weeks. The Hang Seng Index rallied 5.2%.

The country’s junk dollar bonds, dominated by developers, rose at least 1 cent on the dollar, according to traders, with Seazen Group and Country Garden leading gains.

“The property measure is big for A-share developers, given the refinancing of developers in A-share has been technically suspended since 2010,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. “This sends a strong signal to the market that CSRC wants to help developers” on their financing issues, he added.

China’s offshore and onshore yuan extended gains. The offshore pair jumped as much as 1.2% to 7.1585 per dollar. Traders also offloaded government bonds on bets of a faster economic recovery following new property measures.

“Investors will be happy if the protests accelerate a move to accepting Covid and opening up the country,” said Andrew Collier, a managing director at Orient Capital Research Inc. “However, Xi Jinping’s history of centralized decision making is going to make it difficult for local officials to decide exactly how open they should be.”

–With assistance from Charlotte Yang, Lorretta Chen, Tania Chen, Alice Huang and Karl Lester M. Yap.

(Updates with market close prices)