(Bloomberg) – A four-week rally in Chinese stocks should lead to a bull market when trading resumes on Monday, as a rebound in consumption galvanizes stocks.
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The CSI 300 index could extend its 19% rise from an October low when traders return after a week-long Lunar New Year pause, with travel and box office data signaling that consumer spending are on the mend. Hotel operators and restaurant chains will benefit, as well as travel agencies and entertainment-related names.
A sustained uptrend could dispel any lingering doubts that the worst is over for Chinese stocks, after previous rallies were cut short by the surge in Covid cases. The rollback of the virus fight and a political pivot from Beijing have won over Wall Street banks such as Morgan Stanley, which expects Chinese stocks to beat their global peers in 2023.
Gains should “hold as the economic recovery continues through 2023 and investor positioning has yet to be rebuilt after last fall’s sell-off,” said Redmond Wong, strategist at Saxo Capital. Markets HK Ltd. be supported by easing US inflation, a potential pause in Federal Reserve tightening and a better-than-expected European economy, he added.
The CSI 300 index has climbed nearly 20% since the start of the reopening rally in November, lagging a 57% gain in the Hang Seng China Enterprises Index, which tracks Hong Kong-listed Chinese stocks. . The return of overseas buyers has been a key driver for onshore stocks, with northward inflows capping the longest daily streak to January 20 since May 2020.
According to Marvin Chen, an analyst at Bloomberg Intelligence, Mainland stocks could get a boost when Stock Connect feeds resume on Monday.
“There may be catch-up gains,” Chen said. “Holiday spending has picked up somewhat and there may be some effect on global market sentiment as the rate hike cycle nears the end.”
The recovery is fueled by optimism that China’s outlook is improving after data ranging from industrial production to retail sales in December highlighted the economy’s resilience. Earlier this month, Vice Premier Liu He said growth is likely to return to its pre-pandemic trend this year.
Spending habits during the Lunar New Year break boost optimism. Travelers flooded into China’s scenic destinations during the holidays, box office sales surged, and hotel, guesthouse and tourist site bookings topped the comparable period in 2019.
Holiday trips to China, box office rebound after Covid Zero (1)
Meanwhile, movie-related stocks such as IMAX China Holding Inc. and Maoyan Entertainment surged in Hong Kong when trading resumed in the city on Thursday. Sportswear maker Li Ning Co. and hotpot chain Haidilao International Holding Ltd. also joined.
Other assets also climbed, with the offshore yuan set to rise for a third consecutive month amid bullish calls from groups like Goldman Sachs Group Inc., Commerzbank AG and HSBC Holdings Plc.
Still, some investors are warning that a new wave of virus cases could cloud the outlook.
“We would like to see Covid infections fall rapidly in China after what will likely be an increase in cases caused by Chinese New Year travel, paving the way for more robust economic growth,” said Kristina Hooper, chief strategist of the global market at Invesco Ltd. .
But in the near term, demand for Chinese equities could hold up as traders are set to announce more growth-friendly policies at annual policy meetings in March, according to UOB executive director Steven Leung Kay Hian ( HongKong) Ltd.
The MSCI China Index, which includes both onshore and offshore stocks, is trading at 10.4 times the forward price-to-earnings ratio. That’s still below the historical average of 11.6 times.
“You can argue that the market is a bit pricey now after a strong rally, but I don’t think all the good news has been fully priced in, especially on the regulatory front,” Leung said.
–With help from Jeanny Yu and Tania Chen.
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