Chinese Stocks Storm Into Bull Market on Covid, Property Shifts

(Bloomberg) — November’s stellar rebound in Chinese stocks got another fillip on Monday as plans for a sweeping rescue package to bail out developers sent property stocks rallying.

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Along with Friday’s easing of some Covid controls, the property measures gave traders confidence that Beijing is finally taking concrete steps to tackle the two biggest sore points for the economy and markets — Covid Zero and the property crisis.

Pessimism has soon given way to optimism as Chinese stocks seek to emerge from a rout that slashed their weightings in global portfolios and made them the world’s worst performers. Frenzied buying amid a fear of missing out on the rally has sent one measure of volatility in the Hang Seng China Enterprises Index to the highest globally.

The Hang Seng China gauge opened 4.6% higher on Monday before ending the session up nearly 2%. It has now risen 21% from a recent low on Oct. 31, meeting the common definition of a technical bull market. That said, the milestone may be less relevant than usual given this year’s high volatility and the fact the gauge is still down more than 25% this year.

“Shifts on two major policies — Covid control and real estate — will boost investor mood in the short term, given the extreme pessimism in markets,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. “Yet, market performance in the longer term depends on execution of policies and whether policies remain stable.”

Overseas investors piled a net 16.6 billion yuan ($2.4 billion) into China equities via trading links with Hong Kong on Monday, the biggest purchase since December 2021. That’s on top of a net 14.7 billion yuan they bought on Friday.

Financial regulators issued a 16-point plan to boost the real estate market, with measures that range from addressing developers’ liquidity crisis to loosening down-payment requirements for homebuyers, according to people familiar with the matter.

Shares of Country Garden Holdings Co., China’s largest property company, jumped a record 55% in Hong Kong before ending almost 46% higher. Still, it was the top gainer on the Hang Seng China gauge. A Bloomberg Intelligence index of builders’ shares surged almost 19% intraday, the most ever. Developer bonds also soared.

Further, China will give qualified property developers access to as much as 30% of pre-sale funds, Bloomberg News reported after the close of markets in Hong Kong, citing a statement posted on the banking and insurance regulator’s website.

Execution is Key

Chinese stocks had been under pressure for months as authorities signaled determination to maintain a strict Covid Zero policy. The reduction in quarantine time along with other measures announced last week therefore came as a positive surprise, even as the nation reported a faster pace of virus infections over the weekend.

The Hang Seng China Enterprises Index rallied 17% in the last two weeks, swinging from the world’s worst-performing stock gauges to rank the best. The rebound also erased losses suffered in the immediate wake of the Communist Party congress where Xi’s power grab spooked investors.

“The new Covid control guidelines bode well for potential ramping up efforts toward a final reopening, while execution over the next three-to-six months remains key,” Morgan Stanley strategists led by Laura Wang in Hong Kong wrote in a report on Sunday.

Morgan Stanley is closing its preference for so-called A-shares, the strategists wrote. Hong Kong-listed stocks, which suffered more during the long downturn, are now bouncing back more strongly.

The city’s benchmark Hang Seng Index has risen almost 20% this month. The CSI 300 Index, China’s benchmark index on the mainland, is up 8.1%.

“We stay equal-weight on Chinese equities within the global EM framework,” the Morgan Stanley strategists wrote. “We continue to like select exposure to IT, materials and industrials, given their better alignment with top-down policy tailwind.”

–With assistance from Charlotte Yang.