Chinese Shares Soar to Two-Year Highs

SHANGHAI (Reuters) – Chinese shares soared to two-year highs in frenzied trade on Tuesday, extending a blistering rally as mainland markets reopened after a week-long break, while Hong Kong shares slid as investors walked back some of the stimulus excitement.

Mainland shares had added $600 billion in market value by mid-morning and turnover surged past a trillion yuan ($142 billion) within 20 minutes of trading. Industrial metals leapt on bets that recent stimulus measures would stabilize a shaky economy, with semi-conductor and construction shares rallying as expected beneficiaries of government spending.

The blue-chip CSI300 jumped 10% at the open and settled 6% higher in morning trade. The Shanghai Composite hit its highest since December 2021, last up 5%.

Hong Kong shares, in contrast, sold off heavily, with the Hang Seng down 6.8% as investors took profits, as some mainland gains were not as significant as traders had hoped.

China’s bull run is seen as in its early stage, and “now is still a precious window to build long positions,” BOC International (BOCI) noted to clients, recommending tech shares, building materials, and consumer stocks.

While fresh policy announcements might prompt profit-taking corrections, BOCI strategist Xu Peidong indicated that the market would remain upbeat and likely advance higher as the risk of economic deceleration had been contained.

The CSI all-share semiconductor index surged 16%. The construction-engineering index rose 5.1%, and the consumer staples sub-index jumped 5.3% to a more-than three-year high. In contrast, Hong Kong’s index of mainland property developers fell 11%, which analysts suggested was more due to technical reasons than market sentiment.

Natixis’ Gary Ng commented, “There may be a bit of profit taking. I don’t think the sentiment is that different. It’s really about one market being closed for many days while the other continued trading.”

The yuan fell sharply to 7.0502 per dollar and five-year bond futures dropped to their lowest since July before rebounding during an economic officials’ press conference.

Growth Goals

At a highly-anticipated press conference in Beijing, economic officials stated that China was “fully confident” in achieving full-year economic targets and planned to issue 200 billion yuan in advance budget spending and investment projects for next year.

“Everyone’s listening in … with bated breath, hoping to get clarity on the extent of fiscal stimulus,” remarked Rong Ren Goh, a portfolio manager at Eastspring Investments. “Whether it is closer to two or 10 trillion yuan matters,” he added, with something nearer to 10 trillion needed to sustain market growth.

Before the Golden Week break, China announced its most aggressive stimulus measures since the pandemic, leading the CSI300 to gain 25% over five sessions. Last Monday, the CSI300 and the Shanghai Composite both recorded their largest gains since 2008.

However, gains have been so substantial that caution has been urged. Bank of America analysts noted that China’s weighting in the MSCI EM Index rose from 24% in August to 30% now, with continuing outperformance potentially driving a self-reinforcing “pain-trade” before the year’s end. They warned that the “buy everything” phase would end soon, with market momentum and other factors impacting the outlook.

“Consumer, property, and broker stocks might be candidates for profit-taking. Big-cap internet and high-yield SOEs are our preferred exposures,” they advised.