(Bloomberg) — Stocks in China and Hong Kong recovered from last week’s sell-off as traders reassess the prospects for further stimulus and the country’s guidance on boosting company valuations.
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The Hang Seng China Enterprises Index rose as much as 2.2% on Monday, after losing more than 6% last week. Financial stocks such as China Everbright Bank Co. drove the gains, with Hong Kong’s sector index rising the most in a month.
The shares of some Chinese state-owned companies with a price-to-book ratio of less than one also rose. The China Securities Regulatory Commission released guidelines on Friday, urging companies to come up with valuation improvement plans that are “clear, specific and implementable,” according to its statement.
The rally in Chinese stocks has cooled over the past week on concerns about continued deflationary pressures and geopolitical tensions following Donald Trump’s victory in the US elections. But some investors remain hopeful because of China’s encouraging economic data and bets that further stimulus will support the world’s second-largest economy.
“The document itself is a continuation of Beijing’s efforts to stabilize the market in the short term and close loopholes and increase market efficiency in the medium term,” said Siguo Chen, portfolio manager at RBC BlueBay Asset Management, referring to the CSRC statement. “I don’t think this will have an immediate impact other than sentiment.”
The securities regulator’s announcement follows similar efforts by its regional peers such as Japan and South Korea. Japan’s campaign to boost company values has pushed stock benchmarks to a multi-decade high. Korea also recently launched its Value-Up Index, a key part of the government’s push for better corporate governance and shareholder returns.
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