Everything Is Suddenly Going Right for China’s Stock Market

(Bloomberg) — After being the world’s worst performer for much of this year, a key index of Chinese stocks is the biggest gainer so far in November.

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From Covid controls to the property crisis and even US-China relations, the tide seems to be turning on all the major issues that have hammered the equity market in the world’s second largest economy for almost two years. The fear of missing out on what’s shaping up to be an epic rebound has triggered a buying frenzy.

The latest positive for investors is the face-to-face meeting between Joe Biden and Xi Jinping that generated hopes of warmer ties between the two superpowers. It has spurred bets that better collaboration and cooperation between the two sides will reduce the risk of delisting of hundreds of Chinese companies such as Alibaba Group Holding Ltd. from the US due to audit issues.

A gauge of Chinese technology firms listed in Hong Kong jumped 7.3% on Tuesday. The broader Hang Seng China Enterprises Index climbed almost 5% after entering bull-market territory the previous day. The Hang Seng Index, Hong Kong’s benchmark, also hit the milestone on Tuesday as it rose over 4%.

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“China appears to be rapidly addressing all the major issues on investors’ minds, such as Covid Zero, real estate slump and US relations,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “Taken together these also mitigate the broader concern that China may become more ideological, less pragmatic and increasingly isolated post the 20th Communist Party Congress.”

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November’s rally comes after four straight months of losses for key China stock gauges leading up to President Xi Jinping’s precedent-defying power grab at the party congress last month.

The rebound began with frenzied speculation about a potential China reopening, which was lent some credence as authorities relaxed certain Covid controls last week. A series of moves to ease a cash crunch in the real estate sector added fuel to the rally, as it gave traders confidence that Beijing is finally taking concrete steps to tackle the two biggest sore points for the economy — Covid Zero and the property crisis.

Tech and property shares were the top performers in Hong Kong on Tuesday. A Bloomberg Intelligence gauge of Chinese real estate developers was up more than 3%, taking this month’s gain to 61%.

Alibaba surged more than 13% intraday amid expectations that earnings due Thursday will show the e-commerce firm returned to sales growth in the September quarter following its first-ever drop in the prior period.

“Although the meeting contained no dramatic breakthroughs, there was some progress worth noting that should be positive for Chinese equities,” said Dillon Jaghory, an analyst at Global X in New York, referring to the Xi-Biden meeting. “Channels of communication between US-China regulators are crucial to reducing the risk of delisting of China ADRs. Increased engagement should help to mitigate political risk from the US side for Chinese equities.”

On the mainland, China’s benchmark CSI 300 Index rose 1.9%. After having piled a net 16.6 billion yuan ($2.4 billion) into onshore China equities via trading links with Hong Kong on Monday — the most since December 2021 — foreign investors were net buyers of another 8.2 billion yuan in Tuesday’s session.

Stocks rallied even as data showed China’s economic activity weakened in October, with industrial output missing expectations and retail sales contracting for the first time since May. In a sign of continued policy support, China sought to maintain ample cash levels in its financial system with liquidity tools of different maturities, helping halt the worst government bond selloff in six years.

“The initial reaction to the China macro data seems positive despite them coming in below expectations, which may boost the probability of more easing measures in the near term,” said Marvin Chen, a Bloomberg Intelligence analyst.

–With assistance from John Cheng and Yiqin Shen.