The Hang Seng Index closed at 19,115.06 on Monday, a level not seen since August. The index has risen by 27.8 per cent from the year’s low on January 22, putting it firmly in a technical bull run and making it the best performer among major global equity benchmarks.
The rally added more than US$1 trillion (HKS$7.82 trillion) in capitalisation back to the stock market. Investors were encouraged by policy support from China, as well as portfolio rebalancing as fund managers scouted for better value and abandoned overpriced markets elsewhere.
“A slew of support measures for local capital markets have helped lift confidence, while the economic data has also shown more signs of stabilisation,” said Jason Chan, senior investment strategist at Bank of East Asia said. The market still has more room to run with support from corporate earnings and economic data, he added.
The trillion-dollar Hong Kong market bounce is a rebuke of Stephen Roach, a Yale economist and former Asia chairman of Morgan Stanley, who argued that Hong Kong is over. Resilience this time, he later added, would require a new-found political and economic policy autonomy that seemed “highly unlikely.”
Global funds have shifted some of their allocations back to undervalued Chinese equities, according to Daiwa Capital Markets. Net purchases by US hedge funds have risen over the past two weeks, while foreign equity ownership in Hong Kong has risen to 23.6 per cent in April from 23.1 per cent in January, it said.
The next few weeks could get tricky with more earnings and macro data releases, according to China’s top investment bank CICC. Fundamentals and companies’ earnings outlook have yet to show substantial improvements, and a market breather or pullback may not be surprising, CICC strategists including Kevin Liu said in a note on Sunday.
Some economic reports for April, such as China home prices and industrial production, are due on Friday. Stock market heavyweights including Tencent Holdings and Alibaba Group Holding, the owner of this newspaper, will also release their earnings reports this week.
“While the market focused a lot on geopolitics and policies in the past two years, investors are more focused on fundamentals now,” said Winnie Wu, chief China equity strategist at Bank of America. The rebound “should help rebuild market confidence and attract more investors to revisit the China investment thesis.”