2. Chinese Stocks Stage Stunning Rebound in Hong Kong Led by Tech
- The more recent moves of Chinese stocks track a jump in U.S.-listed Chinese stocks overnight, and suggest sentiment has stabilized somewhat after President Xi Jinping’s renewed power grip at the leadership gathering dismayed investors.
- While Xi’s dominance suggests the zero-Covid policy and curbs on private enterprise will likely stay, some investors are starting to focus on cheap valuations and resilient corporate earnings.
Whether it’s Chinese investment funds buying or that the initial aftershock of the Communist Party Congress in China has been overcome, there’s no denying the spectacular rebound in Chinese stocks listed on Hong Kong’s stock exchange.
After a historic 7.3% plunge on Monday, the Hang Seng China Enterprises Index, a gauge of Chinese equities trading in Hong Kong, gained more than 3% early Thursday, marking its third consecutive day of advance.
Meanwhile, the CSI 300 Index, a benchmark for mainland shares, also edged higher on Thursday.
The more recent moves of Chinese stocks track a jump in U.S.-listed Chinese stocks overnight, and suggest sentiment has stabilized somewhat after President Xi Jinping’s renewed power grip at the leadership gathering dismayed investors.
It could also be that the powers that be in China are looking to shore up sentiment as the economy continues to struggle with property crackdowns and zero-Covid policies that have hamstrung growth targets.
As investors focused on a slew of earnings reports and await further policy guidance following the Communist Party Congress, Chinese stocks extended their recovery, lead primarily by tech stocks with declines in the dollar and U.S. Treasury yields also aiding gains.
While Xi’s dominance suggests the zero-Covid policy and curbs on private enterprise will likely stay, some investors are starting to focus on cheap valuations and resilient corporate earnings.
But it may be too early to start picking up pennies off the track as the locomotive comes bearing down as earnings, while better than previous quarters, are still likely to be far below their longer term trends for a slew of companies, especially technology.
By surrounding himself with loyalists, the risk that Xi will deploy his vision for the Chinese economy and his conception of “common prosperity” risks unwinding decades of economic reform, growth and freedom.
Some of these shifts may seem subtle but will have long-term consequences, including having Communist Party members sitting on the boards of major private and publicly-listed companies, as well as a return of the dominance of state-owned enterprises.
State-owned enterprises have been historically bloated, inefficient and susceptible to cronyism and nepotism, which undermines their innovative potential and productivity.
And making matters worse, Beijing’s growing tension with the U.S. over thorny issues including tech exports and Taiwan could see fresh tariffs, economic measures or worse, a full-on invasion.
A lockdown in one of Wuhan’s central districts is also the latest reminder that the economy’s growth will continue to be hampered by zero-Covid curbs.