Things are suddenly going well for the Chinese stock market

(Bloomberg) — After being the world’s worst-performing index for most of this year, a major Chinese stock index is the biggest gainer since early November.

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From Covid controls to the real estate crisis and even US-China relations, the wave seems to be turning all the key issues that have plagued stock markets in the major economy. second in the world for almost two years. The fear of missing out on a strong rebound has fueled a buying frenzy.

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

A gauge of Chinese tech companies listed in Hong Kong rose 7.3% on Tuesday. The broader Hang Seng China Enterprises index was up nearly 5% after entering bull market territory the previous day. The Hang Seng Index, Hong Kong’s benchmark, also hit a major milestone on Tuesday, gaining more than 4%.

READ: Cheap HK shares attractive option for China bulls: Buy stocks

Vey-Sern Ling, chief executive officer of Union Bancaire Privee, said: “China seems to be rapidly addressing all the key issues that concern investors, such as Covid Zero, the drop real estate and relations with the United States”. Taking these together also allays broader concerns that China could become more ideological, less pragmatic and increasingly isolated after the 20th Communist Party Congress. .”

READ: Xi Jinping’s newly empowered pivot policies to stabilize China at home and abroad

November’s rally comes after four straight months of declines for key Chinese stock indexes led to President Xi Jinping’s rise to power despite precedent at last month’s party congress.

The recovery began with frenzied speculation about the possibility of China reopening, which was deemed credible when authorities eased some Covid control measures last week. A flurry of moves to ease cash shortages in the property sector added impetus to the rally, as it gave traders confidence that Beijing is finally taking steps. specifically to address the economy’s two biggest pain points – Covid Zero and the real estate crisis.

Technology and real estate stocks were the best performers in Hong Kong on Tuesday. A Bloomberg Intelligence gauge of Chinese property developers rose more than 3%, bringing this month’s gain to 61%.

Alibaba jumped more than 13% on the day amid expectations that earnings due on Thursday would show the e-commerce company returned to sales growth in the September quarter after its first drop in about a decade. previous time.

“Although the meeting produced no significant breakouts, there was some notable progress that could be positive for Chinese stocks,” said Dillon Jaghory, an analyst at Global X in New York. “. “Communication channels between the US-China regulators are critical to reducing the risk of China’s ADR delisting. Increased participation will help mitigate political risks from the US side on Chinese stocks.”

On the mainland, China’s CSI 300 index rose 1.9%. After a net inflow of 16.6 billion yuan ($2.4 billion) into domestic Chinese stocks through trading links with Hong Kong on Monday — the highest level since December 2021 — the Foreign investors net bought an additional 8.2 billion yuan in Tuesday’s trading session.

Stocks rallied even as data showed Chinese economic activity weakened in October, with industrial output falling short of expectations and retail sales falling for the first time since May. In a further sign of policy support, China has sought to maintain ample cash levels in its financial system with liquidity instruments of varying maturities, helping to stave off a sell-off in bonds. worst government vote in six years.

Marvin Chen, analyst at Bloomberg Intelligence, said: “Initial reaction to China’s macro data looks positive although they are below expectations, which could increase the likelihood of measures. more relaxed in the near future”.

–With support from John Cheng and Yiqin Shen.

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