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Chinese stocks surged on Tuesday, led by gains in property and tech stocks, after the country’s ruling Politburo pledged to boost jobs, boost support for the property sector and revitalize a “windy” economic recovery.
European stocks also rose as investors digested the news from Beijing and waited for a string of earnings reports from US giants later in the day.
Mainland China’s CSI300 index rose 2.9%, while Hong Kong’s Hang Seng Index rose 4.1%. The Hang Seng Mainland Property Index and Hang Seng Tech Index also rose significantly, rising more than 14% and 6%, respectively.
Hong Kong-listed shares of Country Garden, China’s largest developer by revenue, rose 18% after falling 9% on Monday amid a decline in the sector. Among major tech stocks, e-commerce platform JD.com and search engine group Baidu both rose more than 7%.
Chinese stocks outperformed other markets in the region, with Japan’s TOPIX and India’s SENSEX both flat. But traders in Hong Kong said much of the rally was driven by short sellers closing bets on Chinese stocks.
“There is a herd instinct here, and about two-thirds of this rally seems to be short covering,” said Louis Tse, managing director at Wealthy Securities, a Hong Kong-based brokerage firm. “The Politburo has yet to make any firm statements on the policy side, but if you’ve had a short position before, you probably should have covered it today, as do others.”
Investors have been watching a meeting of 24 of China’s powerful Politburo officials on Monday for signs of Beijing’s intervention in reviving China’s economy. The country’s economy recovered strongly early this year after the lifting of COVID-19 measures, but has since lost momentum.
The committee acknowledged that the economy had made “serpentine progress” and said it would work to fight unemployment, accelerate the issuance of special municipal bonds and boost consumption of products such as electronics and electric vehicles.
The economy has been plagued by sluggish consumption, tight liquidity in the property sector and weak manufacturing, with growth of less than 1% in the second quarter from the previous three months. The Politburo said on Monday that “there is a need to actively expand domestic demand” and “expand consumption by increasing residents’ incomes”.
Pointing to various challenges to the economy, Goldman Sachs analysts said the Politburo was “slightly more dovish than expected” and expected more policy support in the coming months.
But economists cautioned that the announcement skimped on details. Tuesday’s gains saw Chinese stocks gain just 0.3% since the start of the year and fall almost 3% in dollar terms, well short of the nearly 20% rise of the S&P 500 and the double-digit gains of peers in the region.
“We will reserve judgment until we hear more,” said Robert Carnell, head of Asia-Pacific research at ING. We already make a lot of vague promises, but so far it’s not going to be a big deal. “
In Europe, basic materials stocks rallied, with the region-wide Stoxx 600 index up 0.3% as investors braced themselves for the prospects of Beijing’s stimulus package.
France’s Cuck 40 and Germany’s Dachs rose 0.1 percent to make up for morning losses, while London’s FTSE 100 rose 0.1 percent.
London-based sector giant Unilever reported better-than-expected underlying sales growth in the first half of the year on continued price gains, while a rally in consumer goods stocks sustained the share price.
“Inflation is the stock market’s best ally.” [ . . . ] Inflation was very high in the first half of the year, making it very easy for companies to raise prices,” said Mabrouk Stuan, head of global market strategy at Natixis Investment Managers.
“The second half of the year is going to be a little bit tougher as inflation is declining,” he said.
The move comes ahead of a busy week of earnings reports in the US and Europe, as investors waited for deal updates from Wall Street heavyweights Microsoft and Alphabet.
Stocks tracking the Wall Street tech-heavy Nasdaq 100 rose 0.3%, while stocks tracking the benchmark S&P 500 rose 0.1% ahead of the New York trade.
The US Federal Reserve will release its monetary policy decision on Wednesday, while the European Central Bank and Bank of Japan will decide interest rates on Thursday and Friday respectively.