China Stocks Primed for Bullish Reopen After Upbeat Data

(Bloomberg) — Chinese stocks look poised for a strong open when onshore traders return from the Lunar New Year break, with buoyant travel and tourism data seen bringing a much-needed relief to one of the world’s worst-performing major markets.

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With trading in mainland China shut Feb. 9-16, investors will likely take cues from gains seen for the country’s shares listed offshore. A gauge of stocks in Hong Kong rallied nearly 5% since it reopened on Wednesday while the Nasdaq Golden Dragon China Index jumped 4.3% for the week, underscoring room for onshore shares to play catch-up.

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Spending patterns during one of China’s most important holidays suggest consumption has revved up even as the broader economy struggles with deflation and a property crisis. Market watchers expect the stream of positive data to give equities at least a short-term boost, lending a helping hand to authorities’ efforts to revive investor confidence. A big question, however, remains on the sustainability of any rebound in the face of deeper economic woes.

“The early read from Chinese New Year data, from holiday hotel sales to Macau visit numbers, points to bright spots in services-related industries,” said Linda Lam, head of equity advisory for North Asia at Union Bancaire Privee. “A-shares should open on a stronger note, continuing the share price recovery on the back of state support,” she said, referring to Chinese stocks traded on the mainland.

A swath of Chinese stocks in Hong Kong surged in response to holiday data showing a 61% gain in rail trips from a year earlier, when the country was experiencing a widespread Covid outbreak. Online hotel bookings and spending on delivery giant Meituan also saw hefty gains.

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Macau reported more than 1 million visitors in the first six days of the holiday — the highest since 2017 when daily data for peak seasons became available — with mainland tourists accounting for 77%% of the total.

Read more: China Holiday Travel Surge Hints at Consumer Spending Pickup

China Tourism Group Duty Free Corp. jumped more than 15% in the three post-holiday sessions in Hong Kong, while travel platform Trip.com Group Ltd. added 7%. Meituan and e-commerce player JD.com Inc gained more than 10% each.

Options data suggest traders are turning more bullish. The Hang Seng China Enterprises Index’s 25 delta skew, which measures the difference between investor demand for puts versus calls, is now in favor of calls for contracts that expire in March.

Authorities sought to stem the equities rout ahead of the holiday, with state funds ratcheting up purchases, a slew of regulatory tweaks to reduce selling pressure and a surprise replacement of the securities regulator chief. The moves enabled the benchmark CSI 300 Index to rebound from a five-year low and climb 5.8% in the week before the holidays.

A continuation of the rally would be pivotal for the world’s second-largest market that has fallen out of favor with investors following a multi-year run of losses. Global money managers have been opting out of Chinese stocks as geopolitical tensions and Beijing’s sweeping control over the private sector bogged down the nation’s tech giants.

Traders are pinning their hopes on further policy support across the monetary and fiscal space, in addition to a cut in the reserve requirement ratio. Any stimulus signs emerging ahead of the key annual meetings in March, where the leadership announces the economic growth target and development goals, will be closely watched.

China’s central bank on Sunday kept a key interest rate steady as it seeks to shield the yuan from extensive swings, while assessing the impact of the recent support measures.

The People’s Bank of China held the rate on its one-year policy loans unchanged at 2.5%, as expected by most of the economists surveyed by Bloomberg.

Read more: China Set to Bide Time on Rate Cut Until Yuan, Data Stabilize

“Funds with light positioning ahead of the holiday might be more proactive in adding A-shares now that the setup is more favorable — with better liquidity after the RRR cut, a new chief at the China Securities Regulatory Commission and consumption strength from the Lunar New Year Holiday,” said Shen Meng, director at Chanson & Co in Beijing.

The CSI 300 gauge has lost more than 40% of its value since a 2021 peak, hammered by the nation’s stringent Covid controls, regulatory crackdowns, an uneven economic recovery as well as geopolitical tensions.

Beyond a likely short-term rebound, doubts run deep over the market’s longer-term prospects. The latest Bank of America Corp. survey of global money managers showed that going short Chinese stocks, which has been the second-most crowded trade for months, is becoming more popular. A third of the respondents said they will increase their allocation if they see more aggressive fiscal policy to boost the real estate sector.

“In the short term, national team buying will still be the key factor that supports the Chinese market,” said Daisy Li, fund manager at EFG Asset Management. “In the next three to six months, it will depend on what target China sets for economic growth and budget deficit for this year.”

Read more: Xi Can’t Use 2015 Playbook to Calm China Markets, Investors Say

–With assistance from Akshay Chinchalkar, Tom Hancock, James Mayger and Adam Majendie.

(Adds central bank rate decision in paragraphs 12 and 13.)

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