If Beijing’s goal was to trigger a massive squeeze on the way to engineering the most epic near-term rally some local benchmarks have ever seen, the Party succeeded.
A day on from aggressive verbal intervention aimed at halting an existential slide in Hong Kong shares and a worsening bear market on the Mainland, Chinese equities extended gains.
The Hang Seng China Enterprises index added nearly 8% to Wednesday’s 13% surge, for the best two-day rally in… well, in a long, long time (figure below).
The city benchmark added 7% to the prior session’s 9% advance, while the Hang Seng Tech gauge, the poster child for pain associated with Xi’s regulatory crackdown and accompanying societal overhaul, rose 8% on the heels of Wednesday’s 22% rally (figure below).
Obviously, skepticism abounds. It’s still unclear what, exactly, Beijing intends to do other than compel the PBoC to free up more liquidity and cut rates to the extent that’s advisable given the burgeoning policy divergence with the Fed. A good start for Xi would be to cease and desist from additional regulatory escalations, and to unveil concrete steps to support the property sector.
For now, though, authorities likely needn’t do much at all. They’ve facilitated a squeeze and injected a palpable sense of FOMO into the market, which may be enough to forestall another meltdown, even if some lucky knife-catchers take profits and weary longer-term holders seize the opportunity to exit loss-making positions with whatever shards of dignity they have left.
The economic outlook is challenging, and while acknowledging the importance of safeguarding public health, at some point it may be advisable for Xi to soften the “zero-COVID” strategy in favor of something more flexible. Such a pivot could help bolster market sentiment without the need for state equity-buying or policy shifts.
It was notable that foreign investors returned to Chinese stocks for the first time in nine sessions, buying nearly $900 million of A-shares through the links Thursday.
Bloomberg crunched some numbers on the way to conjuring a useful statistic. In seven previous cases when Liu He spoke directly to “capital markets” during Financial Stability and Development Committee meetings, Mainland shares posted a median six-month return of 19%.
As I put it Wednesday, “it’s rare that top Chinese policymaking bodies resort to the kind of explicit and, more notably, specific, vows vis-à-vis financial assets.”
I really thought China would drop Covid-0 after the Olympics were done. With how contagious Omicron is, they might not have any choice now.