February 29, 2024

China Stock Rally Extends as Investors Await More Policy Support

(Bloomberg) — A rally in Chinese shares continued Wednesday, a sign of growing investor hopes for authorities to take more forceful steps to sustain a nascent market recovery.

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The mainland benchmark CSI 300 Index rose 0.5% following Tuesday’s 3.5% jump. The gains were more pronounced among smaller stocks, with the CSI 1000 gauge for the segment up 5.6% at one point. The momentum looks weaker in Hong Kong, where a gauge of Chinese firms turned modestly lower after an earlier gain of 1.5%.

The latest gains suggest investors remain hopeful that Beijing will ramp up their rescue campaign with even stronger measures, following a slew of fresh support moves ranging from wider trading curbs to a pledge by the nation’s sovereign wealth fund to boost equities holdings. All eyes are now on a reported plan by regulators to brief President Xi Jinping on markets.

“The government is getting increasingly concerned and they really want to put a floor here,” said Luca Castoldi, portfolio manager at Reyl Intesa Sanpaolo in Singapore. “We think that probably the bottom is here, but for a sustainable rebound you need something more concrete on the economy.”

Contributing to the gains, foreign investors bought another 2.1 billion yuan ($292 million) of onshore stocks as of late Wednesday morning, on course to record a seventh straight session of purchases.

Pressure is mounting on Beijing to act more quickly and resolutely to stem a $7 trillion stock rout that poses a growing threat to financial and social stability, at a time when the world’s No. 2 economy is mired in woes from a worsening housing crisis to persistent deflationary pressures. It’s also crucial for policymakers to prevent a weak stock market from further dampening already anemic consumer demand as China enters the Lunar New Year holiday week.

The rescue measures rolled out so far have mostly been piecemeal in nature, including wider trading restrictions on investors including quantitative hedge funds, as well as moves such as guiding brokerages to adjust margin call levels. Earlier efforts included curbs on short-selling as well as state buying of shares in the nation’s largest banks.

Despite the latest rebound, the CSI 300 remains 3.1% lower for the year and among the world’s worst-performing major indexes.

“I think ultimately what’s gonna be driving the stock market, it has to be from improving fundamentals. For such a large economy, unfortunately it would take time,” said William Yuen, investment director for Invesco in Hong Kong.

–With assistance from Ishika Mookerjee and Jeanny Yu.

(Updates with new chart, comments and latest prices)

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