- Hong Kong market has best week since 2011
- UK-listed China-focused trusts in high demand
- Mining stocks top FTSE 100 gainers
Markets in Asia went into overdrive heading into the weekend thanks to a wave of positive news stories and talk that China could end its zero-Covid policy.
Just a week after Hong Kong and Chinese stocks were hammered following the National Peoples’ Congress in Beijing, the Hang Seng index enjoyed its biggest five-day gain in 11 years.
COULD THIS BE THE BOTTOM?
Investors have been clinging to hopes China will relax its Covid-zero policy, and news this week that restrictions on flights in and out of the country were being eased was seized on by the market.
Having suffered months of selling and outflows from foreign investors, Chinese stocks - and UK-listed investment trusts investing in them - have been trading at their lowest level since the start of the pandemic.
‘Valuations are so low the market is like an elastic band which has been stretched to its limit, and each time there is good news you see it snap back’, says Nick Yeo, manager of the Abrdn China Investment Company (ACIC).
Stocks such as car maker Geely Automotive (175:HKG) and sportswear firm Li Ning (2331:HKG) led the risers with gains of over 12% each, while shares in technology giant Tencent (700:HKG) climbed nearly 8%.
The positive sentiment spilled over into the investment trust sector with Abrdn China climbing 3%, Baillie Gifford China Growth (BGCG) adding 4%, Fidelity China Special Situations (FCSS) adding 5.5% and JPMorgan China Growth & Income (JCGI) adding more than 6% in early trading.
Traders also chased mining stocks with shares in Anglo American (AAL) up 8%, Rio Tinto (RIO) up 7% and Antofagasta (ANTO) up 6% to top the FTSE 100 leader board.
WHAT DO THE EXPERTS THINK?
Yeo suggests while China is opening up to foreign visitors by adding dozens of flights and local firms are travelling abroad more, he doesn’t see a quick end to the zero-Covid policy.
Aside from the fact it is coming up to winter, vaccination rates among older Chinese people are low, as is the availability of intensive care hospital beds.
Also, given its reliance on manufacturing the government can’t afford for large swathes of workers to contract the virus, especially with the latest variant being that much more contagious than the original ‘delta’ strain.
Previous rallies have tended to fizzle out almost as soon as they begin and foreign investors have sold hundreds of millions of dollars-worth of stocks in the last fortnight alone, but such is the negativity surrounding the Chinese market that any sign the economy could be opening up is bound to see share prices fly.
