Chinese stocks saw a notable increase following a report that ignited speculation about Beijing's plan to broaden its monetary easing measures to stimulate the economy. This development led to significant gains in the Hang Seng China Enterprises Index, which experienced its most substantial rise in two weeks. Additionally, a measure tracking Chinese tech shares surged by up to 4.4%.
The optimism stems from a South China Morning Post article quoting President Xi Jinping. He suggested that the central bank should enhance the trading of treasury bonds in its open market operations. This news comes at a time when Chinese stocks have been under pressure due to a series of disappointing earnings reports, raising concerns about the economy's performance. Investors have been keenly awaiting more signs of policy support, especially after Beijing set a 5% annual growth target earlier in March.
However, analysts caution against overinterpreting Xi’s remarks, noting that the market's initial gains tapered off in the afternoon. "The market is moving on expectations of further quantitative easing following the SCMP article," said Steven Leung, executive director at UOB Kay Hian in Hong Kong. "But it doesn't look like China will launch such a massive QE. It seems people just need an excuse to buy at these levels."
The CSI 300 Index, an onshore benchmark, fell by 1.2% on Wednesday, ending below its February closing level. The HSCEI gauge also nearly reversed its monthly gains before rebounding by as much as 2.7% on Thursday. Notably, overseas investors purchased approximately 3 billion yuan ($415 million) of onshore equities on a net basis via trading links with Hong Kong on Thursday, following the largest one-day outflow in over two months the day before.
Some of the market's positive movement can also be attributed to a stronger yuan reference rate set by the People’s Bank of China and Xi’s meeting with US chief executive officers on Wednesday. However, according to Hao Hong, chief economist and partner at Grow Investment Group, the credibility of the media report is questionable since the PBOC has not bought any bonds in the past five months, and the bond yield continues to hit new lows.
Xi's comments were part of a book published this month, which included previously undisclosed excerpts from a speech he gave during a major financial policy meeting in October. He emphasized the need for China to expand its monetary policy toolkit and for the central bank to gradually increase its government bond transactions in open-market operations.
Looking ahead, Raymond Liu, China offshore equity strategist at HSBC Holdings Plc, remains optimistic about the offshore market's potential for 2024. He cites weak investor confidence, low valuations, and a low base as factors that could surprise the market to the upside. "We are convinced there are good long-term growth prospects for the offshore market, even as the overall market sentiment waits for a material uplift," Liu stated.
It's important to note that Hong Kong's markets will be closed for holidays on Friday and Monday.
