Chinese stock rally falters as investors seek fresh impetus

Bloomberg

Chinese stocks saw their worst week in more than a month as investors looked for further catalysts to sustain a world-beating rally since the nation’s reopening.
The CSI 300 Index, a benchmark of mainland shares, fell 1% on Friday and also for the week, ending this year’s run of weekly gains. The Hang Seng China Enterprises Index, which tracks Chinese stocks trading in Hong Kong, lost 5% in its biggest five-day drop since the reopening euphoria started at the end of October.
The setback suggests sentiment is turning more cautious after optimism over China’s Covid Zero exit led to scorching gains over the past three months. While data during the Lunar New Year holidays pointed to a comeback in consumer spending, the economy has yet to regain its footing with weakness in the property market a key drag.
“There is a growing divergence in views on the pace of recovery, with retail investors less confident and expecting only slow and gradual progress,” said Liu Dejun, managing director at Beijing Guanghua Private Fund Management Co. “Most institutional investors have increased exposure and remain upbeat over the long term.”
Market reaction was muted even as officials said the border between Hong Kong and mainland China will fully reopen for the first time in three years. Daily quotas and testing requirements will be dropped and all boundary checkpoints will reopen from next week, according to the city’s leader John Lee.
Some of Friday’s worst performers on the Hang Seng China gauge were those that had posted the largest gains in this rebound, including Country Garden Services Holdings Co. and Baidu Inc.
Foreign investors offloaded mainland shares on Friday for the first time since January 3, having boosted holdings at a record monthly pace. Mainland investors sold a net HK$17.5 billion ($2.3 billion) worth of Hong Kong shares this week, the most since 2021.
However, China bulls are likely to see the selloff as a short-term correction, rather than the start of a downturn. Analysts at Citigroup Inc. this week said the reopening trade has more room to run amid the nation’s strong economic outlook, while those at Jefferies Financial Group Inc. anticipate an upgrade in earnings estimates.
“I don’t expect the panic-selling of 2022 to return. However, it is good to be cautious given the strong rally,” said Qi Wang, chief executive officer at MegaTrust Investment in Hong Kong.
Meanwhile, the border between Hong Kong and mainland China will fully reopen next week for the first time in three years, reviving the city’s role as the business gateway between the country and the rest of the world.
“From Monday, there will be full resumption of normal travel between Hong Kong and the mainland,” the city’s leader John Lee said in a press briefing on Friday along with other top officials. Daily quotas and testing requirements will be dropped and all boundary checkpoints will reopen from next week, Lee said. He also announced the lifting of a ban on unvaccinated travellers from anywhere in the world.
Money has been flowing back into Hong Kong as investors bet on a recovery in China and the city after the nation’s pivot away from Covid Zero. The benchmark Hang Seng Index has surged almost 50% since the end of October, with $1.6 trillion added to the value of the local stock market. That came after the equity gauge plunged to a 13-year low in October. The economy is projected to expand about 2.8%, according to median estimate in a Bloomberg survey.