(Jan 26): Bullish bets grew across stocks in Hong Kong, as holiday spending and tourism data suggested that a recovery is gaining traction in the city and mainland China.
On the first trading day following the Lunar New Year break, the benchmark Hang Seng Index jumped 2.4% to close at its highest since March 1. The Hang Seng China Enterprises Index, which tracks mainland companies listed in Hong Kong, rallied almost 3%. The offshore yuan also strengthened against the dollar, as onshore markets remain closed for the week.
Traders were emboldened by China’s holiday travel and box office data, which showed a strong revival in demand, and suggested that the nation had emerged from the worst of a Covid Zero policy exit wave. Investors have been keeping a keen eye on consumption figures from the nation’s most important holiday to gauge the strength of China’s economic recovery.
The holiday period also saw tourism rebound in Hong Kong and Macau, as cross-border travel revved up. The gaming hub greeted almost 40,000 mainland visitors on the second day of the holiday, the most since the start of the Covid-19 pandemic, while Hong Kong’s daily passenger arrivals also jumped.
“We are tactically bullish on Chinese stocks. I think what we might see in the months ahead is improvement in many of these activity indicators,” Chetan Seth, an Asia-Pacific equity strategist at Nomura Holdings Inc, said in a Bloomberg television interview. An earnings recovery will “give another kind of boost to stock prices”, he added.
The global equities backdrop is also supportive. Tech stocks drove US equities higher earlier this week, as investors await the release of key earnings, and as comments by US Federal Reserve officials dialled back fears of overly aggressive policy moves. The Nasdaq Golden Dragon China Index rose 1.4% over the past three sessions.
With Thursday’s (Jan 26) gains, the Hang Seng Index as well as the Hang Seng China gauge are set to rally for six straight weeks, boosted by the economic reopening and pro-growth policies. That would be the longest streak of weekly gains since January 2020, just before global markets started to collapse as the pandemic took hold.
If the upbeat mood continues, the CSI 300 benchmark may enter a bull market when shares resume trading next Monday. The index has surged a little more than 19% since its late October trough.
Onshore shares have trailed gains seen in Hong Kong in the latest rebound, suggesting that they have more room to advance, especially as offshore peers reach overbought levels. The Hang Seng China Enterprises Index’s relative strength index is at around 76, exceeding the 70 threshold that indicates an asset is technically overvalued.