Hong Kong stocks off to best start since 2018 on China recovery hopes

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

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Hong Kong stocks have started 2023 with the most gains they have seen in the first year-long trading session since 2018.

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

It signaled an improving outlook as China continues to reopen despite a nationwide rise in Covid infections.

“While it is inevitable to see further surges and more widespread inflection in the initial stage of the opening, the outlook for the Chinese economy has brightened for 2023,” said Redmond Wong, market strategist at Saxo Capital. Markets in China, in a note.

“In addition to the reopening, China has stepped up efforts to support the struggling real estate sector and provided property developers with access to credit and equity financing that had been denied to them for most of 2022,” he said. writes Wong.

Real estate and tech stocks continued to drive up the Hang Seng index, which rose more than 3% in Wednesday’s session. The index rose above 20,600, the highest level seen since July 29, according to data from Refinitiv.

Shares of Chinese real estate developers listed in the city rose: country garden jumped more than 7%, Longfor Group gained nearly 12% and Cifi Holdings Group jumped 13% on Wednesday.

The moves followed reports that Chinese officials were planning to provide additional policy support to struggling property developers.

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Tech stocks also rebounded, with shares of 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.

Electric vehicle manufacturer Baidu increased by more than 8%; Chinese video and game app bilibili gained almost 9%; Netease increased by more than 5%; JD.com climbed 7%; and Tencent also increased by about 4%.

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 candies ahead of the Lunar New Year at a street stall in Hong Kong, China, Sunday, Jan. 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 face the multiple challenges ahead,” the minister said.

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

“The Hang Seng Index could top other major global equity indices in 2023, with an expected return of around 30%,” analysts at the company said in a Wednesday note.

“The valuation of the index could see further revisions, and we expect the HSI to return to its previous level before June 2022,” they said in the note.

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Implications for the US Fed

China’s reopening is a positive sign for Asian equities and global economic growth in 2023, but it also carries inflationary risks, thanks to China’s role in boosting demand for the global commodity market, they said. Raymond James analysts said in a note.

Weaker growth in China’s economy will likely increase the odds of a more dovish Federal Reserve, while stronger growth will increase the possibility of a “stubbornly hawkish Fed,” equity strategist Tavis McCourt wrote.

“Volatility looks certain with stocks ending either slightly higher or slightly lower depending on the path of rates,” McCourt said in the note.

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