China traders look beyond Covid-Zero policy to snap up stocks

Traders took China’s reiteration of the Covid Zero strategy in their stride, focusing instead on an eventual reopening and continuing to scoop up the nation’s battered shares.

That meant another day of gains for equity indexes in Hong Kong and China as they try to stage a sustainable rebound after months of heavy losses. Tech and property shares — ones that have been beaten down the most — were the biggest advancers on Monday.

The market exuberance defied stern weekend comments from officials at the National Health Commission, who sought to dispel wild rumours over a reopening by pledging to “unswervingly” adhere to Covid restrictions. At the same time, they criticised cities overzealous in their pandemic controls — something that seemed to appeal to traders’ hopes that a larger policy pivot is on the way.

“Sentiment on Chinese stocks is so low that any potential catalyst would send stocks racing,” David Chao, global market strategist for Asia Pacific ex-Japan at Invesco Ltd. “Pent-up money sitting on the sidelines is chasing this rally. If you look at the stocks that have benefited, it’s the large-cap tech stocks and I’m not surprised.”

The Hang Seng China Enterprises Index ended up 2.8% to extend last week’s rally, which was the biggest since 2015. A separate gauge of Chinese tech stocks in Hong Kong jumped more than 4%. The yuan still weakened against dollar, with the offshore unit weakening 0.7% after 2% surge.

With the likes of Goldman Sachs Group projecting strong gains in the event of a full China reopening, investors are eager to take positions early.

The market will pre-trade any actual reopening about a month in advance, and the positive momentum may last for two to three months, strategists at Goldman wrote in a note dated Sunday, saying a complete China reopening will drive a 20% gain in equities.

“Although the press conference thwarted some hopes of a faster reopening, there have been adjustments at the local level to avoid excessive Covid restrictions, which investors could consider as a slight positive,” said Shen Meng, a director at investment bank Chanson & Co. in Beijing. “So while there could be some volatility, the overall market should remain stable.”

After health authorities criticised overly excessive virus curbs, the city of Zhengzhou pledged to take targeted Covid-19 controls.

Tech stocks climb again after a dizzying rally, when Bloomberg News reported progress in efforts to prevent the delisting of hundreds of Chinese stocks from US bourses.

—Bloomberg