Chinese Shares Surge to Two-Year Highs as Investors Bet on Stimulus

SHANGHAI (Reuters) – Chinese shares soared to two-year highs on Tuesday, continuing a blistering rally as trade resumed after a week-long holiday. Investors are placing their bets on stimulus measures to support the economy, driving the market frenzy.

The blue-chip CSI300 surged 10% in early trade, reaching its highest level since mid-2022. Similarly, the Shanghai Composite rose by 9.7%, hitting its best levels since December 2021. On the other hand, Hong Kong’s Hang Seng, which hit 2-1/2 year highs on Monday, slumped by 2.8%. The yuan also fell sharply to 7.0502 per dollar, while five-year bond futures dropped to their lowest levels since July.

All eyes are on a press conference scheduled by the National Development and Reform Commission at 0200 GMT, where further details of the stimulus pledges driving the market frenzy are expected to be revealed.

Prior to the holiday break, China announced its most aggressive stimulus measures since the pandemic began. This led to a 25% gain in the CSI300 over five sessions. Turnover spiked as heavy buying put a strain on brokers and trading systems. Last Monday, both the CSI300 and the Shanghai Composite recorded their largest gains since 2008.

In an effort to bolster the ailing economy, authorities have cut rates and hinted at fiscal support. Hedge fund manager David Tepper expressed confidence in these moves, stating on CNBC that he would buy “everything” in China.

However, with gains reaching such significant levels, some are now urging caution. Bank of America analysts pointed out that China’s weighting in the MSCI EM Index has risen from 24% in August to 30% currently. This continued outperformance may drive a self-reinforcing ‘pain-trade’ before the year-end.

Despite the caution, analysts believe that the “‘buy everything’ stage will soon come to an end.” They highlighted market momentum, fiscal support, earnings, the upcoming U.S. election, and policy settings as factors shaping the outlook. The analysts also suggested that consumer, property, and broker stocks could be potential profit-taking candidates, while big-cap internet and high-yield SOEs are preferred exposures.

As the market continues its upward trajectory, investors are closely monitoring developments in China and the global economy.

(Reporting by Reuters’ Shanghai newsroom; Editing by Jamie Freed & Shri Navaratnam)