Chinese stock market surged as China's manufacturing activity displayed the highest monthly improvement in more than a decade in February, while services also manifested stronger-than-expected performance. Home sales were also rising for the first time in 20 months, alleviating concerns over the nation’s recovery from the damage caused by the country’s Zero Covid policy.
According to Bloomberg, US-listed China stocks gained on March 01, with the Nasdaq Golden Dragon Index rebounding as much as 4.5%, after an 11% decline in February. These stocks followed their Hong Kong peers, where the rise of tech and property stocks prompted the Hang Seng China Enterprises Index to jump 5.1% overnight, while the offshore yuan gained the most foothold since December.
All stocks on the 50-member Hang Seng China Index rallied 4.2%, the CSI 300 Index of onshore stocks climbed 1.4% higher, and foreign investors added a net 7 billion yuan ($1 billion) of Chinese shares via the trading links with Hong Kong, marking broad optimism across sectors as investors are betting on positive policy announcements on the consumption and property sectors to be made at the upcoming National People’s Congress this weekend.
Wednesday's rally marks a shift from the downward correction trend of recent weeks that came in the wake of statements made by China’s Ministry of Commerce officials, which warned investors of challenges for foreign trade and investment amid the rising risk of a global economic recession and slowing growth in external demand.
The sharp China reopening rally started in November 2022, and by the end of January 2023, the inflows of foreign funds into China’s stocks amassed to a record $21bn. Goldman Sachs expects China’s economy to grow by 5.5% in full-year 2023, powered by second- and third-quarter growth that it now puts at 9% and 7%, respectively.
Bank of America’s February survey of global fund managers even called the country "long China", highlighting the accelerated demand for Chinese stocks from professional investors.
While any optimism on China’s economic recovery has yet to gain ground in the investment trust space, however, three of the four global dedicated China trusts trade Chinese companies’ stocks on high single-digit or double-digit discounts to the net asset value. The managers of these funds have maintained investing in stocks of China’s internet majors and hi-tech companies while they have been undervalued in a time of apparent turmoil.
Manager of Fidelity China Special Situations Dale Nicholls made a point about holding stocks that should do well if the reversal of China's zero-Covid policy boosts strong consumer spending. “While consumer sentiment currently remains weak, with challenges around weak economic trends and the property sector, we think the prospects for improvement are strong, supported by significant household savings built up over the past three years, which should help accelerate consumption and boost economic growth,” he wrote in a note to Dave Baxter of Investors Chronicle.
Iain Cunningham, co-head of multi-asset growth at Ninety One from South Africa, confirmed to Financial Times that more than a third of one $1.3bn fund at the asset manager had been allocated to equities, almost all of it in what he viewed as “exceptionally cheap” Chinese and Hong Kong-listed stocks.