China stocks head for best post-lunar holiday gain since 2019

Chinese stocks’ correlation with US peers has weakened in the past year.
Image: Bloomberg

Chinese shares climbed on their return from a week-long holiday, with sentiment boosted by Friday’s jump in Hong-Kong listed names and easing concerns about regulatory headwinds for the nation’s battered tech sector.

The CSI 300 Index jumped as much as 2.4% before paring its advance to 1.2% as of 10:42 a.m. in Shanghai. Even so, at this level the benchmark is on track for its best post-Lunar New Year holiday performance since 2019. The Shanghai Composite Index also rose.

While global equities advanced when China was shut, stocks on the mainland may struggle to keep up with any initial upward momentum given their weakening correlation with offshore markets, unless policy makers take more steps to restore investor confidence. The CSI 300 plunged into a bear market just before the holidays as worries about a weak economy and the property sector’s debt woes outweighed Beijing’s monetary easing.

Traders returning from their long break are having to contend with challenges ranging from weak local manufacturing and housing data to an expanding camp of hawkish foreign central banks. Economic trends during the festive period — typically a boon for spending and travel — have been disappointing, even with the Winter Olympics.

“Fewer red packets of “lucky money” appear to have been exchanged in the WeChat groups, the box office on the first day of the new year plunged, and lending stats for January among the biggest lenders were disappointing,” Hao Hong, chief strategist at Bocom International, wrote in a note.

Domestic tourism revenue fell around 4% from a year earlier, while virus flare-ups and pollution curbs during the games are weighing on consumer and industrial activity. Movie ticket sales for the first four days of the break were down 23% from a year earlier to 3.5 billion yuan ($550 million), according to Maoyan data.

The Hang Seng China Enterprises Index slid 0.9% in Hong Kong after adding nearly 3% on Friday in its first session post the break.

How China’s central bank will manage liquidity after its customary pre-holiday pump priming will also offer clues. The monetary policy divergence between Beijing and Washington — touted as one key reason for global brokerages to turn bullish on Chinese equities — hasn’t yet led to any meaningful gains, with last month’s cut to a key interest rate failing to excite local traders.

State media reports have again come into play, seeking to rally investor morale after concerted efforts with the securities regulator and mutual funds failed before the holidays. The China Securities Journal said the A-share market is well supported in the medium and long term as investor worries about the economy and policies are expected to ease, while the Shanghai Securities News saw a rally in overseas markets as supportive for local equities.

© 2022 Bloomberg

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