(Bloomberg) — Chinese shares and the onshore yuan climbed on their return from a holiday, with sentiment boosted by Beijing’s supportive policy stance and signs of a continued consumption recovery.
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The CSI 300 Index rose as much as 1.8% on its first trading day in May, with information technology and consumer staples sectors leading the gains. The gauge was the top performer in Asia. The MSCI Asia Pacific Index climbed as much as 0.3%.
The advance follows gains seen offshore when mainland markets were shut for holidays from Wednesday to Friday. The Nasdaq Golden Dragon China Index jumped 8.5% during that period, while a Hang Seng gauge of Chinese stocks rallied 4.4% over the two-day stretch through Friday.
On the currency side, the onshore yuan tracked the advance seen in the offshore unit, which had its best week this year as the dollar retreated.
“Overseas markets including Hong Kong were strong last week, so there’s probably some element of catch up,” said Xin-Yao Ng, director of investment at abrdn. “Travel data coming out from the holiday seemed fine as well.”
Battered Chinese assets are getting a second look as a combination of earnings recovery, policy support and cheap valuations lure investors. The latest catalyst came from the Politburo meeting just before the trading break, when China’s top leaders vowed to explore new measures to tackle a protracted housing crisis and hinted at possible rate cuts ahead.
“The important meeting held before the holidays clarified the goal of continuing to deepen reforms and expand opening up, which will help drive the onshore equity market higher in the near term,” said Shen Meng, director at Chanson & Co. “The travel and consumption trend during the holidays also raised expectations for the consumption recovery.”
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Foreign funds are also returning to Chinese and Hong Kong stocks, though whether this is a tactical rebound or a more sustainable re-rating remains under debate. Bank of America Securities said the worst in terms of fund outflows has passed, while UBS Group AG strategists said earnings for mainland-listed stocks likely bottomed in the first quarter.
Overseas funds boosted holdings of mainland shares for the third straight month in April, the longest buying streak in a year. A rally in Hong Kong shares during the Labor Day holiday — when Chinese investors were out of action — suggests strong appetite from global money.
For the rebound to extend, investors will be looking for firm evidence of consumption recovery in the holiday data. Chinese tourists were headed overseas for the extended May Labor Day holiday at near pre-pandemic levels, according to data provider ForwardKeys. Chinese tourists jumped over 20% in Hong Kong during the holiday.
“We need the May holiday consumption data to meet expectations to sustain the rally,” said Zhikai Chen, head of Asian and global emerging market equities at BNP Paribas Asset Management Asia Ltd. “Otherwise, it will lead to another round of questions on whether consumers are pulling back and if they are getting more cautious.”
China’s major stock indexes are poised to gain this month, helped by looser monetary policies overseas, foreign inflows and upbeat economic data, Shanghai Securities News reported, citing analysts. Listed companies are increasing dividend payouts to lure investors, with the amount handed out in fiscal 2023 accounting for 42% of the companies’ total net profit attributable to shareholders for the year.
Monday trading is the first session for mainland equities to respond to the Politburo’s statement, which was released after markets closed on Tuesday. Analysts have largely offered a positive take, with Chinese property stocks in Hong Kong rallying as authorities said it will look for ways to deal with unsold properties. They also called for faster issuance of special sovereign and local government special bonds — a major source of funding for infrastructure projects.
The onshore yuan jumped 0.4% on Monday to 7.2114, after the central bank set the daily reference rate for the currency stronger than the previous session. The offshore yuan fell 0.3% against the greenback on Monday after reaching the strongest level since mid-March on Friday.
The dollar has come off a recent high after the Federal Reserve’s latest decision was seen as less hawkish than feared.
The Chinese top leaders’ meeting “raised hopes that they will come up with more comprehensive long-term reforms and policies to address” some of the economy’s structural challenges, said Ken Cheung, chief Asian FX strategist at Mizuho Bank. The yuan’s rally may extend in the short term alongside the dollar’s retreat and as foreign investors are less bearish on Chinese assets, he said.
–With assistance from Sangmi Cha and Zhu Lin.
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