China Stock Frenzy Enters Overdrive on Hopes That Worst Is Over

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(Bloomberg) — After nearly two years of disappointment and $6 trillion of losses, speculation that the bottom in Chinese stocks has finally arrived is stoking a world-beating rally this week.

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A flurry of market friendly headlines — along with unverified talk that China is poised to exit its strict Covid Zero policy — have put the Hang Seng China Enterprises Index on track for its best week since 2015. Led by tech names, the gauge soared as much as 8.8% on Friday, as Bloomberg News reported progress in efforts to prevent the delisting of hundreds of Chinese stocks from US bourses.

While similar rallies have all fizzled in recent months, bulls are betting that some of the world’s lowest valuations have left Chinese shares primed to surge on any hint of good news. The risk is that they could be getting ahead of themselves, especially after the nation’s top health body reaffirmed its commitment to Covid Zero.

“It seems markets are very much chomping on any bits of positive news — whether big or small — as a potential catalyst for Chinese shares,” said David Chao, global market strategist for Asia Pacific ex-Japan at Invesco Ltd. “Based on the valuations and that a lot of the bad news has been baked into these stocks, investor sentiment is more geared toward the upside than the downside.”

Rumor mills have infused strong optimism into embattled China markets, where traders have been seeking reasons to scoop up shares. November is looking like a game changer after four straight months of losses in major indexes that culminated with President Xi Jinping’s power grab at the Communist Party congress spooking investors.

Rebounding about 10% this week, Hong Kong’s benchmark Hang Seng Index is set for the best gain since 2011. The CSI 300 Index, the benchmark for mainland stocks, also jumped more than 3% on Friday.

Hopes of a potential reopening got some more boost as a Bloomberg News report Friday said China is working on plans to scrap a system that penalizes airlines for bringing virus cases into the country. Stocks related to reopening, such as Li Ning Co. and Haidilao International Holding Ltd., were among the big gainers in the market.

Internet giants Alibaba Group Holding Ltd. and Tencent Holdings Ltd. soared at least 10% each in Friday’s session. Dozens of US Public Company Accounting Oversight Board inspectors are set to leave Hong Kong as soon as this weekend, earlier than the original schedule of mid-November, people familiar with the matter told Bloomberg News, asking not to be identified because the information is private.

“With so many positive chatters in the market, the indexes are having a relief rally, said Willer Chen, an analyst at Forsyth Barr Asia Ltd. “There are so many rumors. Nothing is confirmed but people are buying on those tips.”

The optimism spread to currency markets, with the offshore yuan rising more than 1%. Dollar bonds of Chinese tech firms had also sold off in recent weeks, but their spreads tightened about 10 basis points Friday, according to credit traders.

READ: Key Meetings to Offer Clues on China’s Economic Path Forward

–With assistance from Abhishek Vishnoi, Dorothy Chan, Charlotte Yang and John Cheng.

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