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

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

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

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

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That indicated an improved outlook as China continues to reopen despite a national spike in Covid infections.

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

“In addition to reopening, China has stepped up its efforts to support the struggling real estate sector and given property developers access to credit and equity financing that they had been denied for most of 2022,” Wong wrote.

Property and technology stocks continued to boost the Hang Seng Index, which rose more than 3% in Wednesday’s session. The index topped 20,600, the highest level seen since July 29, according to Refinitiv data.

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

The moves followed reports by Chinese officials that they planned to provide more political support for struggling property developers.

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Technology stocks also rose, with shares of alibaba rising 8% after Chinese regulators approved Ant Group’s plan to more than double its registered capital, a sign of progress in resolving regulators’ concerns.

electric vehicle manufacturer Baidu rose more than 8%; Chinese video and game app bilibili gained almost 9%; net rose more than 5%; jd.com rose 7%; Y Tencent it also increased about 4%.

The Hang Seng’s rebound came after Chinese Finance Minister Liu Kun told Xinhua in an interview that there will be more support for fiscal policy.

Shoppers shop for festive sweets ahead of the Lunar New Year at a street stall in Hong Kong, China, on Sunday, January 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 was quoted as saying.

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

“The Hang Seng Index may lead other major global stock indices in 2023, with an expected return of around 30%,” the firm’s analysts said in a note on Wednesday.

“The index valuation may see further reassessments, and we expect the HSI to recover to its previous level before June 2022,” they said in the note.

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Implications for the US Federal Reserve.

The reopening of China is a positive sign for Asian stocks and global economic growth in 2023, but it also carries inflationary risks, thanks to China’s role in driving global market demand for commodities, analysts at Raymond James said in a note.

Weaker growth in the Chinese economy will likely raise the chances of a more dovish Federal Reserve, while stronger growth will raise the chance of a “stubbornly hawkish Fed,” wrote equity strategist Tavis McCourt.

“Volatility looks safe with stocks ending up moderately higher or modestly lower depending on the rate path,” McCourt said in the note.

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