A four-week rally in Chinese equities is set to culminate in a bull market when trading resumes Monday, as a rebound in consumption galvanizes the shares.
The CSI 300 Index may extend its 19-percent rise from an October low when traders return after a week-long Lunar New Year break, with travel and box office data signaling that consumer spending is on the mend. Hotel operators and restaurant chains will benefit, as well as travel firms and entertainment-related names.
A sustained uptrend may dispel any lingering doubt that the worst is over for Chinese equities, after previous rebounds were cut short by surging Covid cases. The rollback of virus curbs and a policy pivot by Beijing have won over Wall Street banks such as Morgan Stanley which expects China’s equities to beat global peers in 2023.
The gains are likely to “sustain as the economic recovery will continue throughout 2023 and investor positioning has yet to be replenished after the capitulation sale last fall,” said Redmond Wong, strategist at Saxo Capital Markets HK Ltd. The rally in the first half will be underpinned 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 almost 20 percent since the reopening rally began in November, lagging a 57-percent gain in the Hang Seng China Enterprises Index, which tracks Chinese stocks listed in Hong Kong. The return of overseas buyers has been a key driver for onshore equities, with northbound inflows capping the longest daily streak through January 20 since May 2020.
Mainland shares could get a further boost when Stock Connect flows resume on Monday, according to Marvin Chen, an analyst at Bloomberg Intelligence.
“There may be some catch-up gains,” said Chen. “Holiday spending has recovered somewhat and there is maybe some carry over from global market sentiment as the rate hike cycle approaches the end.”
Spending spree
The upswing is fueled by optimism that China’s outlook is improving after data from December industrial output to retail sales highlighted the economy’s resilience. Earlier this month, Vice Premier Liu He said growth will likely rebound to its pre-pandemic trend this year.
