Investors hope for catch-up rally as Chinese stocks reopen

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A nearly 5 per cent rise for Hong Kong’s Hang Seng China Enterprises Index over the past week has stoked expectations for a catch-up rally when mainland stock exchanges return from their 10-day Lunar New Year holiday on Monday.

Traders and strategists say recent gains by Chinese equities have rekindled some clients’ interest in the market after years of underperformance, although some pointed out that activity on the city’s exchange had been thin during the past few days, and that foreign institutional investors had mostly remained on the sidelines.

“I’ve got some decent buying, but at the same time I’m selling into it,” said the Hong Kong-based trading head at one investment bank. “Monday will be much more of an acid test for the direction of the China market.”

The reopening of exchanges in Shanghai and Shenzhen in the new year of the dragon will serve as a high-profile litmus test of global investor demand for Chinese shares, which has been battered by slowing economic growth and ongoing woes in the country’s property sector.

China’s benchmark CSI 300 index, which had been down more than 9 per cent year to date in early February, posted a sharp rebound in the days just before the holiday, paring losses for the year to just 2 per cent by the close on February 8.

However, that still left the index down more than 40 per cent from a peak in early 2021, and last Wednesday, index provider MSCI announced plans to remove 66 constituents from its benchmark MSCI China index following protracted share price falls for the country’s largest listed companies.

Strategists said much of the pre-holiday gains for Chinese stocks had been driven by China’s so-called “national team” of state-run financial institutions, which are expected to resume share purchases on Beijing’s orders when markets reopen on Monday.

“In the near…