Bull market beckons Chinese stock traders as consumption picks up

(Bloomberg) – China’s four-week rally will culminate in a bull market as trading resumes on Monday, as recovering consumption boosts equities.

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The CSI 300 could extend its 19% gain from October lows as traders head back from the week-long Lunar New Year holiday, with travel and box office data signaling that Consumer spending is improving. Hotel and restaurant operators as well as travel agencies and entertainment-related names will benefit.

A sustained uptrend could dispel any lingering doubts that the worst is over for Chinese stocks, after previous rallies were cut short by rising Covid cases. Beijing’s push back on virus containment measures and a policy pivot has won over Wall Street banks like Morgan Stanley, which expect Chinese stocks to beat their peers globally. demand in 2023.

Redmond Wong, strategist at Saxo Capital Markets HK Ltd, said the gains are likely to “sustain as the economic recovery will continue through 2023 and investor positions have yet to be replenished after the round. The sell-off surrendered last fall.” He added that the European economy will be underpinned by easing US inflation, the Federal Reserve’s ability to pause tightening policy tightening and the better-than-expected European economy.

The CSI 300 Index has gained nearly 20% since the reopening rally began in November, lagging behind the 57% gain in the Hang Seng China Enterprises Index, an index that tracks Chinese stocks. listed in Hong Kong. The return of overseas buyers is the main driver for domestic stocks, with capital inflows north hitting the longest daily record through Jan. 20 since May 2020.

According to Marvin Chen, analyst at Bloomberg Intelligence, Mainland shares could rise further when the Stock Connect line resumes on Monday.

“There might be some catch-up benefit,” Chen said. “Holiday spending has recovered somewhat and there could be some influence from global market sentiment as the rate hike cycle draws to a close.”

Aggressive spending

The uptick was fueled by optimism that China’s outlook was improving after data from December industrial output to retail sales showed the economy’s resilience. Earlier this month, Vice Premier Liu He said growth is likely to bounce back to pre-pandemic trends this year.

Spending patterns over the Lunar New Year holiday are reinforcing optimism. Tourists flocked to China’s scenic destinations during the holiday season, box office revenue increased, and bookings for hotels, motels and tourist attractions exceeded comparable periods in 2019.

Chinese holiday tourism, box office recovers after Covid Zero (1)

At the same time, film-related stocks such as IMAX China Holding Inc. and Maoyan Entertainment spiked in Hong Kong as trading resumed in the city on Thursday. Sportswear maker Li Ning Co. and hot pot chain Haidilao International Holding Ltd. also increased.

Other assets also rose, with the offshore yuan on track for a third straight month of gains amid calls from companies such as Goldman Sachs Group Inc., Commerzbank AG and HSBC Holdings Plc.

However, some investors warn that a new wave of virus cases could cloud the outlook.

Kristina Hooper, chief global market strategist at Invesco Ltd, said: “We would like to see Covid cases rapidly decline in China following what could be a surge in cases due to Lunar New Year travel. expected to pave the way for stronger economic growth”. .

More stimulation

But in the near term, demand for Chinese stocks could pick up as traders get ready for more pro-growth policies to be announced at the annual political meetings in March. , according to Steven Leung, chief executive officer of UOB Kay Hian (Hong Kong) Ltd.

The MSCI China index, which includes both domestic and foreign equities, trades at 10.4x forward earnings. This is still 11.6 times lower than the historical average.

“You could argue that the market is a bit expensive right now after a big bull run, but I don’t think all the good news is fully priced in, especially in terms of regulation,” Leung said. .

–With support from Jeanny Yu and Tania Chen.

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