(Bloomberg) — Chinese shares listed in Hong Kong jumped the most in almost two years, adding to their stimulus-induced euphoria as traders returned from a public holiday.
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The Hang Seng China Enterprises (^HSCE) Index climbed as much as 8.5%, extending its winning streak to 13 straight days. Property developers led gains with a gauge tracking the sector leaping as much as 35%, a record intraday advance, while an index of brokerage shares, a barometer of risk sentiment, jumped 32%. Mainland Chinese markets remain shut until Oct. 8 for a week-long holiday.
“Hedge funds and mutual funds, which had previously been underexposed, are now moving into Chinese assets,” said Billy Leung, an investment strategist at Global X Management in Sydney. “These moves are being supported by a broader reversal in key markets such as copper and Asia Pacific currencies, driven by renewed optimism in China’s growth.”
Sentiment toward equities in the world’s second-biggest economy has seen a dramatic turnaround since the start of last week as the authorities unveiled a range of stimulus measures that included interest-rate cuts, freeing-up of cash for banks, and liquidity support for stocks. Four major cities also eased home-buying curbs and the central bank moved to lower mortgage rates.
There’s growing optimism the blitz of stimulus has brought an end to the three-year slide in Chinese shares that was driven by the stuttering economy and multi-year property crisis. Still, there have been a number of false dawns, most recently a rally that started in February, so investors have ample reason to remain cautious.
So far, the attractive valuations of Chinese stocks after their prolonged decline are helping to lure investors.
Even with the recent surge, the Hang Seng China Enterprises Index is still trading at below nine times estimated earnings for the next 12 months, less than half that of the S&P 500 (^GSPC), data compiled by Bloomberg show.
Brokerages powered ahead Wednesday amid optimism they will be among the key beneficiaries of the stock trading frenzy as they make a commission in every trade. China Merchants Securities Co. gained as much as 76%, and Guolian Securities Co. rose almost 50%.
Hedge funds are piling into Chinese stocks at an unprecedented pace, according to Goldman Sachs Group Inc. Leveraged funds made record net purchases of Asian stocks in September, led by China and Hong Kong, based on data from the investment bank’s prime brokerage desk.
Billionaire investor David Tepper is buying more of “everything” related to China, while the world’s biggest money manager, BlackRock Inc., is now overweight Chinese shares. US-based Mount Lucas Management has entered into bullish positions on China exchange-traded funds, while Singapore’s GAO Capital is buying Chinese large cap stocks.
“If subsequent policies can exceed expectations, I think the bull market can last three months to half a year,” said Bo Pei, an equity research analyst at US Tiger Securities Inc. “A correction amid such a sharp rise isn’t unusual. What’s important is whether it can continue to rise after the correction. I personally am quite confident.”
The impact of the stock rally is also being seen in the currency market.
A gauge measuring the one-month borrowing costs in Hong Kong dollars climbed for a eighth day to the highest since August, a sign liquidity is becoming tighter amid seasonal demand for cash and a surge in stocks. Hong Kong’s currency rose to trade close to the strong end of its trading band and the offshore yuan also strengthened.
The stock rally has been so powerful that in just eight days, China has regained the weighting in emerging-market indexes that it lost over the previous 10 months.
The country’s share in MSCI Inc.’s benchmark for developing-nation equities rose to 27.8% at the end of September, the highest since November 2023, according to data compiled by Bloomberg based on those stocks listed on mainland, Hong Kong and overseas markets.
Chinese shares are leading gains in global equity benchmarks over the past month. The Hang Seng China Enterprises Index is the top performer with a gain of 31%, while the Hang Seng Index is second at 28%.
“We are turning more positive on China’s economic outlook,” Sylvia Sheng, global multi-asset strategist at JP Morgan Asset Management, wrote in a client note. “Positive signals from the Chinese government and regulators, and their increased focus on supporting economic growth and stabilizing the property sector should help put a floor on market prices and propel momentum in the equity markets.”
—With assistance from John Cheng and Tian Chen.
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