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Chinese equities jumped on Tuesday, led by gains in property and technology stocks after the country’s ruling politburo vowed to boost employment, give more support to the real estate sector and reinvigorate a “tortuous” economic recovery.
Mainland China’s CSI 300 rose 2.9 per cent, while Hong Kong’s Hang Seng index was up 4.1 per cent. There were also strong gains for the Hang Seng Mainland Properties index and the Hang Seng Tech index, which added more than 14 per cent and 6 per cent, respectively.
Stocks in the US and Europe also gained, with Wall Street’s benchmark S&P 500 up 0.4 per cent in early trade.
Among the biggest gainers in Hong Kong was Country Garden, China’s biggest developer by sales, which gained 18 per cent after falling 9 per cent on Monday amid a sell-off for the sector. In the tech sector, ecommerce platform JD.com and search engine group Baidu both rose more than 7 per cent.
Gains for China stocks outstripped markets elsewhere in the region, with Japan’s Topix and India’s Sensex both flat. However, traders in Hong Kong said much of the rally was being driven by short sellers closing out their bets against Chinese stocks.
“There’s a herd instinct here, and about two-thirds of this rally looks like short covering,” said Louis Tse, managing director of Hong Kong-based broker Wealthy Securities. “The politburo hasn’t talked about anything solid yet in policy terms, but if you had a short position before this you probably needed to cover today because everyone else is.”
Investors had closely watched Monday’s meeting of China’s powerful 24-member politburo for signs that Beijing would step in to revive the country’s economy, which rallied strongly at the beginning of this year after the unwinding of zero-Covid curbs but has since lost momentum.
The committee acknowledged the “tortuous progress” the economy had made and said it would work to tackle unemployment, speed up the issuance of special local government bonds and boost consumption of electronics, electric vehicles and other goods.
The economy has been plagued by weak consumption, a property sector liquidity crunch and flagging manufacturing, eking out growth of less than 1 per cent in the second quarter compared with the previous three months. The politburo on Monday said it was “necessary to actively expand domestic demand” and “expand consumption by increasing residents’ income”.
Analysts at Goldman Sachs wrote that the politburo was “slightly more dovish than expected”, noting the various challenges to the economy, and that they expected further policy support in the coming months.
However, economists warned the announcement was light on detail. Tuesday’s gains left Chinese equities up just 0.3 per cent for the year to date and down almost 3 per cent in dollar terms, well short of an almost 20 per cent rise for the S&P 500 and double-digit gains for peers around the region.
Robert Carnell, head of Asia-Pacific research at ING, said: “We will reserve judgment until we hear some details. We have had plenty of vague promises already, which don’t amount to a great deal so far.”
In Europe, the region-wide Stoxx 600 added 0.3 per cent, lifted by basic materials stocks as investors took heart at the prospect of economic stimulus from Beijing. France’s Cac 40 rose 0.2 per cent, recouping early-morning losses, while London’s FTSE 100 and Germany’s Dax gained 0.1 per cent.
Equities were also held up by the consumer goods sector, as the London-based industry giant Unilever gained almost 5 per cent, having reported higher than expected underlying sales growth in the first half of the year, driven by continued price rises.
“Inflation is the best ally of the equity market [ . . . ] We were in a situation in the first half of the year, where inflation was extremely high and it was extremely easy for corporates to increase prices”, said Mabrouk Chetouane, head of global market strategy at Natixis Investment Managers.
“The second half of the year will be a bit more challenging because inflation is declining,” he added.
The moves came ahead of a series of important central bank meetings this week. The US Federal Reserve will announce its latest interest rate decision on Wednesday, while the European Central Bank and the Bank of Japan will set rates on Thursday and Friday, respectively.
