(Bloomberg) -- Chinese shares listed in Hong Kong jumped the most in almost two years, extending their stimulus-induced euphoria as traders returned from a public holiday.
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The Hang Seng China Enterprises Index climbed as much as 8.4%, extending its winning streak to 13 days. Property developers led gains with a gauge tracking the sector leaping as much as 31%, a record intraday gain, while an index of brokerage shares — seen as a barometer of risk sentiment — jumped 28%. Mainland Chinese markets remain shut until Oct. 8 for a week-long holiday.
The extended rally is driven by optimism about China’s economy and risk assets after the authorities unveiled a range of stimulus measures last week that included interest-rate cuts, freeing-up of cash for banks, and liquidity support for stocks. Four major cities also eased home-buying curbs and the central bank moved to lower mortgage rates.
The gains “reflects a fundamental shift in investor positioning as hedge funds and mutual funds, which had previously been underexposed, are now moving into Chinese assets,” said Billy Leung, an investment strategist at Global X Management in Sydney. “These moves are being supported by a broader reversal in key markets such as copper and Asia Pacific currencies, driven by renewed optimism in China’s growth.”
The attractive valuations of Chinese stocks after a three-year decline are helping to lure investors.
Even with the recent surge, the Hang Seng China Enterprises Index is still below 9 times estimated earnings for the next 12 months, less than half that of the S&P 500, data compiled by Bloomberg show.
Hedge Funds
In another sign of surging investor interest, hedge funds are piling into Chinese stocks at a record pace.
Billionaire investor David Tepper is buying more of “everything” related to China, while the world’s biggest money manager, BlackRock Inc., is now overweight Chinese shares. US-based Mount Lucas Management has entered into bullish positions on China exchange-traded funds, while Singapore’s GAO Capital and South Korea’s Timefolio Asset Management are buying Chinese large cap stocks.
“I still remain bullish, and if subsequent policies can exceed expectations, I think the bull market can last three months to half a year,” said Bo Pei, an equity research analyst at US Tiger Securities. “A correction amid such a sharp rise isn’t unusual. What’s important is whether it can continue to rise after the correction. I personally am quite confident.”
Weighting Regained
The rally has been so powerful that in just eight days, China has regained the weighting in emerging-market indexes that it lost over the previous 10 months.
The country’s weighting in MSCI Inc.’s benchmark for developing-nation equities rose to 27.8% at the end of September, the highest since November 2023, according to data compiled by Bloomberg based on the gauge’s shares listed on mainland, Hong Kong and overseas markets.
“We are turning more positive on China’s economic outlook,” Sylvia Sheng, global multi-asset strategist at J.P. Morgan Asset Management, wrote in a client note. “Positive signals from the Chinese government and regulators, and their increased focus on supporting economic growth and stabilizing the property sector should help put a floor on market prices and propel momentum in the equity markets.”
--With assistance from John Cheng.
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