Chinese stocks break into bull market on Covid and ownership changes

(Bloomberg) – The stellar rebound in Chinese stocks in November got another boost on Monday as plans for a massive bailout to bail out developers sent property stocks back up.

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Alongside the relaxation of some Covid controls on Friday, the property measures reassured traders that Beijing is finally taking concrete steps to tackle the two biggest pain points in the economy and markets – Covid Zero and the real estate crisis.

Pessimism has quickly given way to optimism as Chinese stocks seek to recover from a rout that has reduced their weighting in global portfolios and made them the worst performers in the world. Frantic buying in fear of missing out on the rally propelled a measure of volatility in the Hang Seng China Enterprises Index to the highest level globally.

The Hang Seng China gauge opened Monday up 4.6% before ending the session up almost 2%. It is now up 21% from the recent low on Oct. 31, meeting the common definition of a technical bull market. That said, the milestone may be less relevant than usual given the high volatility this year and the fact that the gauge is still down more than 25% this year.

“Changes to two major policies – Covid control and real estate – will boost investor sentiment in the near term, given the extreme pessimism in the markets,” said Shen Meng, director of the Beijing-based investment bank. Beijing Song & Co. “Yet longer-term market performance depends on policy execution and policy stability.

Foreign investors invested 16.6 billion yuan ($2.4 billion) in Chinese stocks via business ties with Hong Kong on Monday, the biggest purchase since December 2021. That comes on top of 14.7 billion net yuan they bought on Friday.

Financial regulators have released a 16-point plan to boost the housing market, with measures ranging from solving developers’ liquidity crunch to easing down payment requirements for homebuyers, according to people familiar with the case.

Shares of Country Garden Holdings Co., China’s largest property company, jumped 55% in Hong Kong before ending up nearly 46%. Still, it was the top winner in the Hang Seng China gauge. A Bloomberg Intelligence index of builder stocks jumped nearly 19% intraday, the most on record. Developer obligations have also skyrocketed.

In addition, China will give qualified property developers access to up to 30% of pre-sale funds, Bloomberg News reported after markets closed in Hong Kong, citing a statement on the banking and insurance regulator’s website. .

Execution is key

Chinese stocks had been under pressure for months as authorities signaled their determination to maintain a strict Covid Zero policy. The reduced quarantine time and other measures announced last week therefore came as a positive surprise, even as the country reported an accelerating pace of virus infections over the weekend.

The Hang Seng China Enterprises Index has risen 17% over the past two weeks, rising from the world’s worst performing stock market indicators to ranking the best. The rebound also erased losses incurred in the immediate aftermath of the Communist Party Congress where Xi’s takeover spooked investors.

“The new Covid control guidelines bode well for a potential escalation of efforts towards a final reopening, while execution over the next three to six months remains critical,” Morgan Stanley-led strategists wrote on Sunday. Laura Wang in Hong Kong.

Morgan Stanley is closing its preference for so-called A shares, the strategists wrote. Hong Kong-listed stocks, which suffered more during the long downturn, are now rebounding more strongly.

The city’s benchmark Hang Seng index rose nearly 20% this month. The CSI 300 index, China’s benchmark index on the mainland, is up 8.1%.

“We remain equally weighted on Chinese equities within the global emerging markets framework,” Morgan Stanley strategists wrote. “We continue to like selective exposure to IT, materials and industrials, given their better alignment with the tailwind of top-down politics.”

–With the help of Charlotte Yang.

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