Hong Kong's Hang Seng Index Soars as Traders Bet on China-Exposed Stocks Ahead of Mainland Market Reopening
Hong Kong's Hang Seng index surged 2.4% on Friday as traders eagerly anticipated the reopening of mainland markets after a week-long holiday. The index came close to reaching a one-month high, with heavyweight mainland stocks leading the gains.
Market Optimism Boosts Real Estate Developers
During Friday's rally, real estate developers Longfor Properties Co Ltd, Country Garden Services Holdings Co Ltd, and China Resources Land Ltd saw their stocks rise between 5% and 9%. This positive performance reflects confidence in China's property market, which has been showing signs of recovery following a three-year slump.
WuXi Biologics Makes a Comeback
WuXi Biologics, a biopharmaceutical company, experienced a remarkable 12.5% surge as it rebounded from losses earlier in the week. This resurgence is a welcome relief for the company, indicating growing investor confidence in the biotech sector.
Chinese Holiday Spending Raises Hope for Economic Recovery
Reports from local media indicate that Chinese travel demand soared during the week-long Lunar New Year holiday. This surge in consumer spending has sparked hope for an overall improvement in the economy, which has been struggling with sluggish growth. However, it remains uncertain whether this holiday boost will lead to sustained economic progress.
Challenges Remain for Chinese Economy
Despite the holiday spending spree, Chinese economic activity has displayed little signs of picking up before the Lunar New Year holiday. Business activity and inflation readings for January pointed to a sustained decline in the economy, which only managed to achieve a 5% annual growth target in 2023. The economy has been grappling with a prolonged property market crisis and deflation due to weak consumer spending.
Monetary Support and Market Intervention Fall Short of Expectations
In an effort to bolster growth and stabilize falling stock markets, the Chinese government has introduced monetary support and directed sovereign funds toward local markets. However, these measures have had limited success. Both the Shanghai Composite and Shenzhen Component indexes were hovering around their respective five and four-year lows last week, and showed little improvement despite these interventions.
People's Bank of China Expected to Maintain Key Rate
Given the current state of the economy, it is widely anticipated that the People's Bank of China will keep its benchmark interest rate near record lows during the upcoming policy meeting on Tuesday. This decision reflects the ongoing challenges facing the Chinese economy and the need for continued support.
As mainland markets reopen next week, analysts will closely monitor the performance of China-exposed stocks and the broader economic indicators to gauge the health and trajectory of the Chinese economy.
Analyst comment
Positive news: The Hong Kong Hang Seng index rose 2.4% as traders invested in China-exposed stocks ahead of the reopening of mainland markets. Real estate developers and biotech firms saw significant gains. Increased holiday spending during the Lunar New Year suggests a potential recovery in consumer spending. However, the Chinese economy still faces challenges, including slow growth and persistent deflation.
Market forecast: The market is expected to continue its upward trend as mainland markets reopen, but sustained economic improvement remains uncertain. The People’s Bank of China is likely to maintain its benchmark unchanged, providing some stability to the market.
