(Bloomberg) — A four-week rally in Chinese stocks will end in a bull market as trading resumes Monday.
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The CSI 300 index may extend a 19 percent rise from October’s low as traders return from a weeklong Lunar New Year break, as travel and box office data show consumer spending is improving. Hotel operators and restaurant chains benefit as well as travel agencies and entertainment-related names.
A sustained rally after previous recoveries were halted by a surge in Covid cases dispels any lingering doubts that the worst is over for Chinese stocks. The virus restrictions and Beijing’s policy stance have won Wall Street banks such as Morgan Stanley, which sent Chinese shares soaring in 2018. They will beat their international peers in 2023.
Saxo Capital Markets H.K.L. Limited strategist Redmond Wong said gains will continue as the economic recovery continues into 2023 and investors’ positions are yet to fill. He said it would be supported by lower US inflation, tighter controls by the Federal Reserve and a stronger-than-expected expansion of the European economy.
The CSI 300 index has risen nearly 20% since its reopening rally in November. The return of overseas buyers has been a key driver for offshore stocks, with the longest daily inflow northbound since May 2020 through January 20.
Bloomberg Intelligence analyst Marvin Chen said Mainland stocks could see further gains on Monday as stock conglomerate flows continue.
“There could be some holding gains,” Chen said. “Holiday spending has recovered somewhat and there may be some load from global market sentiment as the rate hike cycle comes to an end.”
A spending spree
China’s outlook is improving with optimism after data from December industrial production to retail sales confirmed the economy’s resilience. Earlier this month, Vice Premier Liu He said growth could pick up to pre-epidemic trends this year.
Spending patterns are reinforcing optimism during the Lunar New Year holiday. Travelers flocked to China’s scenic destinations on holiday, with box office sales and bookings at hotels, guesthouses and tourist spots exceeding the same period in 2019.
China’s holiday travel, the box office is back after the Covid zero (1).
Similarly, film-related companies such as IMAX China Holding Inc. Shares in Hong Kong and Maoyan Entertainment jumped as trading resumed in the city on Thursday. Sportswear manufacturer Li Ning Co. and hotspot chain Haidilao International Holdings Ltd. also came together.
Such as Goldman Sachs Group Inc., Commerzbank AG and HSBC Holdings Pvt.
Still, some investors warn that a new wave of virus cases could cloud the outlook.
Christina Hooper, global market strategist at Invesco Ltd, said: “We would like to see a rapid drop in Covid infections after the spike in cases due to Chinese New Year travel.” .
More stimulation
But in the near term, Steven Ling, managing director of UOB Kai Hian (Hong Kong) Ltd, said demand for Chinese equities could remain subdued in March as traders prepare for more growth policies.
The MSCI China Index, which includes onshore and offshore stocks, trades at a price-to-earnings ratio of 10.4 times. That’s still less than the historical average of 11.6 times.
“You could argue that the market is a bit expensive right now after the demonstrations, but I don’t think all the good news has been fully priced in yet, especially on the regulatory front.”
–With assistance from Jenny Yu and Tania Chen.
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