(Bloomberg) — Chinese stocks are expected to open strong when onshore traders return from the Lunar New Year break, as positive travel and tourism data bring relief to one of the world’s worst-performing major markets.
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With trading in mainland China closed from Feb. 9-16, investors are likely to take cues from gains in the country’s offshore-listed shares. Stocks in Hong Kong rallied nearly 5% since reopening on Wednesday, while the Nasdaq Golden Dragon China Index jumped 4.3% for the week, indicating potential for onshore shares to catch up.
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Spending patterns during the Lunar New Year holiday suggest increased consumption even as the broader economy faces challenges. Positive data is expected to give equities a short-term boost, supporting efforts to revive investor confidence. However, concerns remain about the sustainability of any rebound amid deeper economic issues.
“The early data from Chinese New Year, including holiday hotel sales and Macau visit numbers, indicates positive trends in service-related industries,” said Linda Lam, head of equity advisory for North Asia at Union Bancaire Privee. “A-shares should open strong, continuing the price recovery with state support,” she added, referring to Chinese stocks traded on the mainland.
Several Chinese stocks in Hong Kong surged in response to holiday data showing a significant increase in rail trips and online hotel bookings. Macau reported a high number of visitors, with mainland tourists accounting for the majority.
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Options data suggests a more bullish sentiment among traders. The Hang Seng China Enterprises Index’s 25 delta skew is now in favor of calls for contracts expiring in March.
Authorities took measures to stem the equities rout before the holiday, including increased state fund purchases and regulatory changes. The benchmark CSI 300 Index rebounded from a five-year low, climbing 5.8% in the week before the holidays.
A continuation of the rally is crucial for the world’s second-largest market, which has seen declining investor interest in recent years. Global money managers have been avoiding Chinese stocks due to geopolitical tensions and Beijing’s control over the private sector.
Traders are hopeful for further policy support and stimulus measures ahead of key annual meetings in March. China’s central bank kept a key interest rate steady to stabilize the yuan and assess the impact of recent support measures.
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“Funds with lighter positioning ahead of the holiday may be more active in adding A-shares now, given the favorable setup with improved liquidity, regulatory changes, and strong consumption during the holiday,” said Shen Meng, director at Chanson & Co in Beijing.
The CSI 300 gauge has dropped over 40% since its 2021 peak, impacted by Covid controls, regulatory crackdowns, economic challenges, and geopolitical tensions.
Despite a potential short-term rebound, doubts persist about the market’s long-term outlook. The latest Bank of America Corp. survey shows growing interest in shorting Chinese stocks, with some managers looking for more aggressive fiscal policies.
“In the short term, national team buying will continue to support the Chinese market,” said Daisy Li, fund manager at EFG Asset Management. “In the next few months, growth targets and budget deficit decisions will be key factors.”
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–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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