Chinese stocks rallied strongly on February 6th, posting their biggest single-day gain in years, as the government and regulators pledged support to stem the recent market rout. Both the Shanghai and Shenzhen composite indexes rose over 3%, while Hong Kong’s Hang Seng index jumped over 5%.
Ongoing Stock Market Slump and Economic Concerns
The moves come after a dismal January for Chinese markets, with the benchmark Shanghai index down over 15% to start the year, making it one of the world’s worst performing major stock markets. Investor sentiment has been crushed by the slowing economy, regulatory crackdowns, real estate troubles, and strict pandemic policies.
There is growing pessimism about China’s economic prospects in 2023. GDP growth is expected to barely top 5%, which would be one of the lowest rates in decades. Many analysts believe actual growth could be even weaker considering questions around the accuracy of official government data.
The stock market woes also come amid a weakening yuan, rising corporate bond yields, and slumping property sector. Home prices registered their biggest annual drop in over 7 years.
Government and Regulator Support Measures
To stabilize sinking markets, China’s state-owned securities journal reported that the country’s sovereign wealth fund would increase stock purchases to curb risks. Regulators also vowed to keep money market interest rates stable, strengthen stock link schemes with Hong Kong, and crack down on illegal short-selling.
In addition, the China Securities Regulatory Commission (CSRC) held a rare meeting with executives from major brokerages and asset managers to discuss the market situation and contingency plans. The CSRC said it would “maintain market stability” and “safeguard the legitimate rights and interests of investors”.
Sources also said top leaders would hold a high-level meeting this week to discuss plans for supporting the stock market. There is belief that more stimulus measures could be announced around the Lunar New Year holidays to improve investor and consumer confidence.
Stocks Surge on Renewed Optimism
The strong government and regulator rhetoric helped spark a relief rally on February 6th. In Hong Kong, the Hang Seng index jumped 5.2% led by a nearly 15% surge in Tencent Holdings. Tech and property stocks broadly outperformed.
The Shanghai Composite rallied 3.5% for its best single day gain since 2021. The Shenzhen Component Index surged 4.3%. Stocks in insurance, securities, electronics, and machinery industries led the way.
One-Day Gains for Key China Indexes on February 6th
| Index | Gain |
|---|---|
| Hang Seng (Hong Kong) | 5.2% |
| Shanghai Composite | 3.5% |
| Shenzhen Component | 4.3% |
Sources said national state-owned firms were actively buying stocks to stabilize the market. Overseas investors also returned as buyers, snapping up a net $1 billion in mainland stocks via trading links with Hong Kong.
The rally in China boosted broader Asian indexes. Japan’s Nikkei and South Korea’s Kospi both rose over 1% and Taiwan’s benchmark gained 2.5%.
Analyst Views and Next Steps
While investors welcomed the sharp bounce after January’s drubbing, analysts cautioned that further government policy support would be needed to sustain any rebound.
“It remains to be seen whether today’s rally has legs,” said Paul Loh, an economist at Daiwa Capital Markets. “Much rides on the NPC meeting next month when more economic stimulus could be announced.”
Others noted China may turn to President Xi for leadership on the stock market malaise. “With tension in markets rising, Xi may hold a special meeting to boost confidence,” said Larry Hu, chief China economist at Macquarie Group.
Analysts believe currency stability will also be important going forward. “The primary thing is the renminbi does not weaken too fast — that could spur capital flight,” added Loh.
For stock investors, the focus will turn to quarterly earnings reports and guidance for clues on the corporate health. How aggressively companies buy back shares may also dictate market direction.
Ultimately though, analysts say government policy action will determine if this week’s rally has staying power or proves short-lived like previous failed rebound attempts.
So in summary, Chinese stocks and indexes posted major gains February 6th after a brutal January, sparked by promises of government and regulator support. While positive, it remains unclear whether this renewed optimism will last without more concrete stimulus and policy action. Markets are likely to remain volatile until China’s growth outlook stabilizes.
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