Chinese stocks rebound after a dreadful month on optimistic data

(Bloomberg) – Chinese markets rebounded as stronger-than-expected manufacturing data suggested the economic recovery is gaining momentum, encouraging traders to jump in after weeks of selling.

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The Hang Seng China Enterprises Index rose 5.1%, helped by technology and real estate stocks, rebounding after a more than 11% loss in February. The Hang Seng index rose 4.2%, while the offshore yuan rose the most since December. Other assets across Asia also rose.

READ: China’s factory activity surpasses highest decade, fueling recovery

Wednesday’s rebound marks a reversal from recent weeks, when investors took profits on a lack of positive catalysts in China’s powerful reopening rally that began in November. Traders are now positioning for the National People’s Congress which begins this weekend and are banking on positive policy announcements, particularly for the consumer and real estate sectors.

“It’s more of a positioning for the new month because I think a lot of the sales happened in February,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Things are coming back strong.”

Still, some “global funds are waiting for a better entry point, some signs of political stability from Congress and want to continue monitoring economic data points,” he said.

READ: China’s growth target, stimulus in focus for new leadership

China’s manufacturing activity posted the highest monthly improvement in more than a decade in February, while services also performed better than expected. As home sales surged for the first time in 20 months, the string of positive data helped allay concerns about the country’s recovery from the damage caused by its Covid-Zero policy.

February losses

Such concerns, coupled with geopolitical worries, led to huge losses in February, with the Hang Seng indicator for China erasing all of its 2023 gains and Hong Kong’s benchmark Hang Seng index sliding into a correction.

How the market develops from here will depend heavily on the outcome of the congress. A lack of stimulus or worrying political developments can boost sales, just as they did after the October political meeting when President Xi Jinping’s seizure of power resulted in a historic defeat.

“I think we’re seeing a tipping point where production picks up again,” Elizabeth Kwik, abrdn plc’s Asian equities investment director, said on Bloomberg TV. “China has a lot of labor available,” unlike other economies that opened up earlier, suggesting labor shortages will not be an obstacle to recovery, she added.

Broad rally

The CSI 300 index of onshore stocks ended up 1.4%. Foreign investors added a net 7 billion yuan ($1 billion) worth of Chinese stocks through Hong Kong’s trading links, ending five straight selling sessions.

All stocks in the 50-piece Hang Seng China gauge rose, underscoring broad optimism across sectors. A gauge of Macau casino shares rose 5.1% after gaming revenues improved.

The offshore yuan continued gains, rising 1.1% to 6.8805 per dollar. The Bloomberg JPMorgan Asia Dollar Index climbed 0.6%, set for its biggest gain in a month, with the Thai baht leading the rise. In the commodities market, iron ore futures in Singapore rose as much as 2.3%.

“Market participants will seek confirmation of a soft approach, if not an easing of regulatory restrictions in the real estate and technology sectors – critical to reviving business confidence,” Aninda Mitra, Head of Asia Macro and Investment Strategy at BNY Mellon Investment Management, wrote in a note, referring to the NPC.

–Assisted by Chester Yung, Ernest Tsang, Matthew Burgess, Winnie Hsu, David Ingles and Yvonne Man.

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