(Bloomberg) — Chinese shares listed in Hong Kong jumped Wednesday, extending their stimulus-induced euphoria as traders returned from a public 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 run since January 2018. Property developers led gains with a gauge tracking the sector leaping as much as 30%, while an index of brokerage shares jumped 25%. Mainland Chinese markets remain shut until Oct. 8 for a week-long holiday.
The extended rally is driven by optimism about China’s economy and risk assets after the authorities unveiled a range of stimulus measures last week that included interest-rate cuts, freeing-up of cash for banks, and liquidity support for stocks. Four major cities also eased home-buying curbs and the central bank moved to lower mortgage rates.
The rally “reflects a fundamental shift in investor positioning as hedge funds and mutual funds, which had previously been underexposed, are now moving into Chinese assets,” said Billy Leung, an investment strategist at Global X Management in Sydney.
The attractive valuations of Chinese stocks after a three-year decline are helping to lure investors.
The rush of stimulus measures from the authorities came just as the struggling economy sent the valuation of the Hang Seng China Enterprises Index down to about 7 times estimated earnings for the next 12 months, versus the five-year average of 8.4 times. It’s still at only 8.7 times, less than half that of the S&P 500, data compiled by Bloomberg show.
Brokerage shares, considered a barometer of risk sentiment in China equity markets, also surged. China Merchants Securities Co. gained as much as 59% and Citic Securities Co. and Guolian Securities Co. both rose more than 25%.
Hedge Funds
In another sign of surging investor interest, hedge funds are piling into Chinese stocks at a record pace.
US-based Mount Lucas Management has entered into bullish positions on China exchange-traded funds, while Singapore’s GAO Capital and South Korea’s Timefolio Asset Management are buying Chinese large cap stocks. Tribeca Investment Partners in Sydney is snapping up proxies such as Australian miners.
“I still remain bullish, and if subsequent policies can exceed expectations, I think the bull market can last three months to half a year,” said Bo Pei, an equity research analyst at US Tiger Securities. “A correction amid such a sharp rise isn’t unusual. What’s important is whether it can continue to rise after the correction. I personally am quite confident.”
–With assistance from John Cheng.
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