Chinese stocks lead a bullish charge in Hong Kong after major stimulus

Chinese stocks listed in Hong Kong surged dramatically, marking their largest rally in almost two years, as traders returned from a national holiday.

Fueled by stimulus-driven optimism, the Hang Seng China Enterprises Index shot up by as much as 8.4%, extending a remarkable 13-day winning streak.

Leading the gains were property developers, with a sectoral index rising by an unprecedented 31% in intraday trading, while a gauge tracking brokerage shares—a key indicator of risk appetite—soared 28%.

Meanwhile, mainland Chinese markets remained closed for a week-long holiday until October 8.

Government stimulus fuels investor confidence

This ongoing rally is largely credited to renewed confidence in China's economy following the government's introduction of significant stimulus measures last week.

Among the steps taken were interest rate cuts, an increase in liquidity for banks, and various forms of financial support for stock markets.

Additionally, home-buying restrictions in four major cities were relaxed, and the central bank reduced mortgage rates to stimulate the property sector.

Investment strategist Billy Leung from Global X Management in Sydney noted that these developments are pushing investors back into Chinese assets.

Bloomberg report quoted Leung as saying:

He also emphasized the broader market reversal in key sectors such as copper and Asia-Pacific currencies, driven by China’s economic recovery.

Valuations make Chinese stocks attractive to global investors

The appeal of Chinese stocks is further amplified by their relatively low valuations after a prolonged three-year downturn.

Even with the recent upswing, the Hang Seng China Enterprises Index is still trading at less than nine times its projected earnings over the next 12 months.

By comparison, the S&P 500 is trading at more than double that, according to Bloomberg data.

Signaling growing interest, hedge funds have been pouring into Chinese equities at an unprecedented pace.

Billionaire investor David Tepper has reportedly increased his exposure to China, while BlackRock Inc., the world’s largest asset manager, has also taken an overweight position in Chinese stocks.

Other major players, including US-based Mount Lucas Management, Singapore's GAO Capital, and South Korea's Timefolio Asset Management, are also making bullish moves on Chinese large-cap stocks and exchange-traded funds (ETFs).

China regains its position in emerging market indices

China's rapid rally has also led to the recovery of its weighting in key emerging-market indices, a position it had lost over the last 10 months.

Data compiled by Bloomberg shows that by the end of September, China's share of MSCI Inc.'s benchmark for developing-nation equities had risen to 27.8%, the highest level since November 2023.

In a client note, Sylvia Sheng, global multi-asset strategist at J.P. Morgan Asset Management, echoed this positive sentiment.

"We are becoming more optimistic about China's economic outlook," Sheng wrote.

She pointed to recent signals from Chinese authorities, including their increasing focus on supporting economic growth and stabilizing the troubled property sector, as pivotal in lifting market sentiment and sustaining upward momentum in equities.