Chinese stocks surge in biggest weekly rally since 2008

Chinese equities have experienced their largest weekly rally since 2008, with a surge of trading that overwhelmed the Shanghai stock exchange, reflecting a significant shift in investor sentiment following increased economic stimulus from Xi Jinping's government.

In an echo of the rally that followed China’s massive stimulus during the global financial crisis, the CSI 300 Index of large-cap shares soared 4.5% on Friday — bringing this week’s gain to 16%, News.Az reports, citing foreign media.

Trading activity was so intense that it led glitches and delays in processing orders, according to people familiar with the matter. The Shanghai exchange said it was investigating the issues, without elaborating.

It was a frenzied end to a week that has raised hopes of a bottom in China’s $8.9 trillion stock market after years of losses that made it one of the world’s worst performers. Chinese authorities unleashed a long hoped-for barrage of monetary stimulus on Tuesday, followed by vows from top leaders to do what’s necessary to shore up the housing market and boost consumption.

A gauge of Chinese stocks in Hong Kong climbed 2.5%, notching its longest winning streak since 2018. The ChiNext index, a tech-heavy gauge, rose a record 10%. Turnover in China reached nearly three times the amount from the days prior to the stimulus blitz that began on Tuesday.

As investors turned to risk assets over havens, China’s ultra-long government bond futures saw their biggest daily loss on record Friday. China’s 10-year bond yield rose 5 basis points at 2.16%.

The securities regulator’s guidelines to encourage companies to attract long-term investors also fortified the optimism already brewing in the market.

The broad rally Friday was underscored by 266 of the CSI 300 Index’s 300 members ending the day in the green, with spirits maker Kweichow Moutai Co. and battery producer Contemporary Amperex Technology Co. leading the surge.

But Chinese bank stocks bucked the rally and fell, as investors weighed the implications of a 1 trillion yuan ($142 billion) capital injection plan reported by Bloomberg News. China is planning to inject funds mainly raised from the issuance of new special sovereign bonds, the report said, citing people familiar with the matter.

The injection plan could lead to a 56 basis point dilution of return on equity, JPMorgan analysts including Katherine Lei wrote in a note. The slump may also a reflect a shift away from sectors that were viewed as more resilient when the market was falling; with some of the nation’s highest dividend yields, Chinese banks have appealed to investors looking for stable returns.

Morgan Stanley is among a slew of China watchers gradually turning bullish, with strategist Laura Wang and her colleagues seeing another 10% upside for the CSI 300 Index in the short term. Just days earlier, the Wall Street bank removed its preference for onshore stocks over offshore counterparts, citing a lack of supportive factors such as state buying.

The optimism also drove higher other Asian stocks with exposure to the world’s second-biggest economy as the risk-on mood intensified across the region.

News.Az