(Bloomberg) — Chinese stocks listed in Hong Kong rose Wednesday, extending their stimulus-induced euphoria as traders returned from a holiday holiday.
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The Hang Seng China Enterprises Index climbed as much as 6.6%, extending its winning streak to 13 days, the longest since January 2018. Real estate developers led the way with gains, with a gauge tracking the sector jumping by as much as 30%, while an index of brokerage shares rose by 25%. Markets in mainland China will remain closed until October 8 for a week-long holiday.
The prolonged rally is driven by optimism about China’s economy and risk assets after authorities last week unveiled a raft of stimulus measures, including interest rate cuts, freeing up cash for banks and liquidity support for stocks. Four major cities also eased restrictions on home buying and the central bank moved to lower mortgage rates.
The rally “reflects a fundamental shift in investor positioning as previously underexposed hedge funds and mutual funds now focus on Chinese assets,” said Billy Leung, investment strategist at Global X Management in Sydney.
Chinese stocks’ attractive valuations after a three-year decline are helping to lure investors.
The authorities’ rush of stimulus came just as the struggling economy sent the Hang Seng China Enterprises Index’s valuation down to around seven times estimated earnings for the next 12 months, from the five-year average of 8.4 times. It still stands at just 8.7 times, less than half that of the S&P 500, according to data compiled by Bloomberg.
Brokerage stocks, considered a barometer of risk sentiment in China’s stock markets, also rose. China Merchants Securities Co. won a whopping 59% and Citic Securities Co. and Guolian Securities Co. both rose by more than 25%.
Hedge funds
In another sign of rising investor interest, hedge funds are piling into Chinese stocks at a record pace.
US-based Mount Lucas Management has taken bullish positions on Chinese exchange-traded funds, while Singapore’s GAO Capital and South Korea’s Timefolio Asset Management are buying large-cap Chinese stocks. Tribeca Investment Partners in Sydney buys proxies like Australian miners.
“I still remain optimistic, and if subsequent policy can exceed expectations, I think the bull market could last three months to half a year,” said Bo Pei, equity research analyst at US Tiger Securities. “A correction to such a sharp increase is not unusual. What is important is whether interest rates can continue to rise after the correction. Personally, I have every confidence in it.”
–With help from John Cheng.
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