Chinese stocks surged to two-year highs on Tuesday, extending a strong rally as markets reopened after the week-long holiday. Investors are betting on stimulus measures to boost the economy, pushing the blue-chip CSI300 up 10% in early trading, marking its highest level since mid-2022, while the Shanghai Composite climbed 9.7%, reaching its best level since December 2021.
In contrast, Hong Kong’s Hang Seng, which reached 2.5-year highs on Monday, dropped 2.8%. The yuan weakened sharply to 7.0502 per dollar, and five-year bond futures hit their lowest levels since July.
All eyes are now on a press conference from the National Development and Reform Commission, scheduled for 0200 GMT, which could provide further details on the stimulus measures fueling the market surge.
Before the holiday, China introduced its most aggressive stimulus package since the pandemic, leading to a 25% gain in the CSI300 over five sessions. Heavy buying activity strained trading systems, and both the CSI300 and Shanghai Composite recorded their biggest gains since 2008 last Monday.
Authorities have reduced interest rates and hinted at fiscal support to revive an economy that, by China’s standards, has been underperforming. Hedge fund manager David Tepper expressed optimism, telling CNBC that the stimulus measures were so encouraging he would “buy everything” in China.
However, after such significant gains, some are urging caution. Bank of America analysts noted that China’s weighting in the MSCI EM Index has risen from 24% in August to 30%, warning that continued outperformance could lead to a “self-reinforcing ‘pain-trade'” before the end of the year. They added that the “buy everything” phase may soon be over, citing market momentum, fiscal policies, earnings, and the U.S. election as factors to watch.
The analysts suggested consumer, property, and broker stocks as potential profit-taking opportunities, while recommending large-cap internet companies and high-yield state-owned enterprises (SOEs) as preferred investment options.
