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Shares in Hong Kong posted their biggest daily gains this year following a call from China’s premier for “forceful” state support to halt a punishing market rout.
The city’s benchmark Hang Seng index rose 2.6 per cent on Tuesday after Premier Li Qiang’s called for “more forceful and effective measures to stabilise the market and boost confidence”.
The Hang Seng fell almost 14 per cent last year, making it one of the worst-performing benchmark indices across all large markets. Stocks in Shanghai, Shenzhen and Hong Kong are continuing to lose ground as a result of slowing economic growth in China, an unresolved financial crisis in the property sector and worsening tensions between Beijing and Washington.
Traders said Li’s comments prompted a handful of global funds to begin to strategically buy up undervalued shares in Hong Kong, where shares are down about 10 per cent this year. But they added that the gains would prove fleeting if state support did not materialise.
“This is healthy buying, but unless there’s evidence of deployment then the impact of this sort of rhetoric will die out as quickly as it went on,” said the trading desk head at one investment bank in Hong Kong. “This could be the boy that cried wolf.”
Chinese equities in Shanghai and Shenzhen were little changed. The benchmark CSI 300 index was up just 0.4 per cent on Tuesday. “The rebound may be short-lived,” said Dickie Wong, head of research at Kingston Securities.
Separately on Tuesday, China’s video game regulator removed from its website draft rules that proposed controls on players’ spending, boosting shares in Hong Kong-listed game developers Tencent and NetEase and helping the Hang Seng tech index rise 3.8 per cent.
Authorities in Beijing have over the past year tried to halt a protracted sell-off in Chinese equities. Public measures to boost demand included cuts to stock trading fees and purchases of bank shares by a government investment fund.
Regulators have also started issuing private instructions to Chinese mutual funds and securities companies that forbid them from being net sellers of equities on certain days.
The lack of interest from investors forced the city’s government to convene a liquidity task force last year to recommend measures to boost trading activity.
But that effort has had little impact, according to estimates by analysts at Goldman Sachs, which showed the share of listings in Hong Kong with less than $1mn of daily turnover had risen to about 60 per cent by the end of 2023, compared with a historic average of about 30 per cent.
“US capital and investors have been more cautious when it comes to positioning in Hong Kong-listed Chinese equities,” said Kinger Lau, chief China equity strategist at Goldman Sachs.
But he added that increased investment flows from the Middle East and south-east Asian investors “had partially offset the reduction in positioning from US and European investors.”
