China Stocks Storm Back on Renewed Policy Support Speculation

(Bloomberg) — Chinese stocks bounced back in afternoon trading as foreign investors accelerated purchases and speculation mounted that policy makers will step in to support the economy.

Most Read from Bloomberg

The CSI 300 Index advanced 2%, the biggest gain in nearly two weeks, driven higher by financial and tourism stocks. Hong Kong’s Hang Seng Index also rebounded to gain as much as 1.5%.

Bets that Chinese authorities will take measures to shore up growth and boost investor confidence have intensified after Premier Li Keqiang issued a third warning about economic growth risks in less than a week. Chinese stocks have been under intense pressure recently, as the nation’s worsening Covid outbreak and regulatory uncertainties made the market lose momentum after a brief mid-March rally.

Given the premier’s warnings about waning growth, the uptick in the afternoon could be partly due to investors betting on a policy rate cut as per precedent play books, said Justin Tang, head of Asian research at Mariana Ufp LLP. “The sentiment is that a rate cut is a matter of time.”

Bets that further monetary easing is imminent have been gathering pace, following repeated comments from top officials pledging growth support. Likely steps include a reduction in the banks’ required reserve ratio and interest rates on policy loans, analysts say.

A mid-March pledge by the authorities to stabilize markets and support growth has fallen short of sustaining the market’s rebound, with Covid outbreaks emerging as the biggest risk.

Traders cite a relaxation of lockdown rules as the key for the market to regain momentum. While Shanghai has partly eased its lockdown, the vast majority of the city’s 25 million residents are still subject to tight movement restrictions.

Foreign investors were net buyers of 9.1 billion yuan ($1.4 billion), the most this month. That’s versus a tally of less than 2 billion yuan at the mid-day break.

The offshore Chinese currency strengthened as much as 0.22% versus the U.S. dollar on Tuesday, the most in a week.

READ: China Said to Limit Sales by Some Funds as Stocks Slide Again

“Judging from the trend of the rebound and the performance of some individual stocks, we see some support from funds protecting the broader market and it’s possible that RRR cuts or interest rate cuts will be introduced soon,” said Meng Shen, Director at boutique investment bank Chanson & Co.