AS CHINESE stocks in Hong Kong head for their best two-week rally since 2007, questions are arising over just how far this rebound can go.
The Hang Seng China Enterprises Index (HSCEI) has gained 36 per cent since last month’s low, with a bulk of the gains coming after Beijing’s bumper stimulus announcement on Sep 24. Some stocks have seen astronomical gains as share prices more than doubled in a matter of days.
While the stimulus package has unleashed a wave of buying and seen strategists, including those at BlackRock, turn bullish on the once beaten-down market, some naysayers are now starting to emerge.
Rajiv Jain, who manages the top-performing US$23 billion GQG Partners Emerging Markets Equity Fund, expects the rally to be fleeting while Nomura Holdings economists are warning against the risk of a 2015-like bubble crash.
In many ways, the way forward for Chinese equities depends on whether Beijing will follow up with more concrete measures to prop up the economy. Some investors are also waiting to see if data from one of the country’s most important holiday seasons shows signs that consumer spending has improved. Onshore markets are poised to reopen after the Golden Week holidays on Oct 1.
“The change in the direction and mindset of authorities to me is really important,” but we are looking forward to how consumers have reacted in the Golden Week holiday, and how the government follows up on fiscal support, Tai Hui, Asia-Pacific chief market strategist at JPMorgan Asset Management, said in a Bloomberg TV interview. “That would be a key factor in sustaining the rally that we have seen so far.”
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
The HSCEI rose as much as 3.1 per cent on Friday (Oct 4), resuming its rally following a one-day blip, as investors pinned hopes that data on the nation’s holiday spending will provide more impetus for the market. It has gained about 27 per cent over the past two weeks, the most since August 2007.
Leisure travel demand during the Golden Week holidays has been resilient, with travel traffic gaining momentum, Citigroup analysts said. China saw 21.4 million railway trips on the first day of the holiday, a record single-day volume, state news agency Xinhua reported, citing China State Railway Group.
Shares of e-commerce firms Meituan and Alibaba Group Holding were the top contributors to gains on the HSCEI gauge on Friday.
“Decisive action”
Optimism has been dominant since the People’s Bank of China surprised with cuts in a key interest rate, reserve requirement ratio and mortgage rates early last week, which was soon followed by the Politburo pledging support for the economy and major cities easing homebuying rules.
Combined, many saw the moves as a “whatever-it-takes” moment, akin to former European Central Bank president Mario Draghi’s pledge to preserve the common currency during the 2012 debt crisis.
The measures reversed course for the world’s second-largest stock market. The MSCI China Index, which was earlier heading for an unprecedented fourth straight annual loss, is now up more than 34 per cent for 2024.
Optimism has spread to other asset classes as well, with prices of iron ore – one of the commodities most exposed to the fluctuations of the Chinese real estate market – soaring in recent days.
The sudden bull run, however, is giving rise to concerns that the gains may have gone too far, too fast. Some are sceptical that Chinese markets can roar back to life after years of slump when deep-rooted economic woes, such as a prolonged property crisis and weak consumption, remain unsolved.
The relative strength index for the Hang Seng China gauge soared to a record high of 91 on Wednesday, above the 70 threshold that some traders view as a sign that gains have gone too far.
“While the market response has been generally positive, much will depend on whether a robust fiscal stimulus package materialises,” Amundi Investment Solutions strategists including Alessia Berardi wrote in a note. “In the near term, the combination of monetary easing and targeted housing support should provide a temporary uplift, but a longer-lasting recovery will require more decisive fiscal action.” BLOOMBERG
