Hong Kong stocks got off to their best start of 2018 on hopes of China's recovery

Hong Kong stocks got off to their best start of 2018 on hopes of China’s recovery

Shoppers walk through a street market in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images

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Hong Kong stocks started 2023 with their biggest gains in the first trading session of the year since 2018.

The Hang Seng Index on Tuesday it gained 1.84%, or 363.88 points – the biggest first-day gain since January 2018, when the index rose nearly 2%.

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That signaled a better outlook as China continues to reopen despite a nationwide surge in Covid infections.

“While it is inevitable to see further increases and more extensive inflections in the initial phase of the opening, the outlook for the Chinese economy has improved for 2023,” Redmond Wong, chief strategist for China at Saxo Capital Markets, said in a note.

“In addition to the reopening, China has stepped up its efforts to support the distressed real estate sector, giving developers access to credit and equity financing that was denied to them for most of 2022,” Wong wrote.

Property and technology stocks continued to boost the Hang Seng index, which rose more than 3% in Wednesday’s session. The index topped 20,600, its highest level since July 29, according to Refinitiv data.

City-listed shares of Chinese developers rose: Country garden jumped more than 7%, Longfor Group gained almost 12% and Cifi Holdings Group it jumped 13% on Wednesday.

The moves followed reports of Chinese officials planning to provide more policy support to ailing real estate developers.

Chinese tech giant Alibaba is one of our best performers this year, says the asset management firm

Technology stocks also rallied with the stock Ali Baba up 8% after Chinese regulators approved Ant Group’s plan to more than double its share capital, a sign of progress in addressing regulators’ concerns.

Manufacturer of electric vehicles Baidu increased by more than 8%; Chinese video and game apps They believed gained almost 9%; Don’t tease increased by more than 5%; JD.com climbed 7%; and Tencent also increased by 4%.

The Hang Seng’s rally came after Chinese Finance Minister Liu Kun told Xinhua in an interview that there would be more support for fiscal policy.

Shoppers buy festive sweets ahead of the Lunar New Year at a street stall in Hong Kong, China, Sunday, January 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images

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The government will work to expand and improve “the effectiveness of proactive fiscal policy to cope with many future challenges,” the minister said.

Chinese investment bank Guotai Junan Securities said the performance of Hong Kong stocks will influence the broader global market.

“The Hang Seng Index may lead other major global stock indexes in 2023 with an expected return of around 30 percent,” the company’s analysts said in a note on Wednesday.

“Index valuations may experience further recursion and we expect HSI to recover to previous levels by June 2022,” they said in a note.

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Implications for the US Fed

China’s reopening bodes well for Asian equities and global economic growth in 2023, but carries inflationary risks, thanks to China’s role in driving global commodity demand, Raymond James analysts said in a note.

Weaker growth in the Chinese economy is likely to increase the chances of a dovish Federal Reserve, while stronger growth raises the possibility of a “stubbornly hawkish Fed,” wrote equity strategist Tavis McCourt.

“Volatility looks certain, with stocks ending either slightly higher or slightly lower depending on the rate trajectory,” McCourt said in a note.

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