Chinese equities in the Hong Kong market are on the verge of achieving a significant benchmark, buoyed by encouraging economic indicators and corporate news. The Hang Seng China Enterprises Index saw an increase of up to 2.4% on a recent Wednesday, marking a more than 20% rise from its low on January 22. This surge, propelled by a positive shift in sentiment, could signal the index's entry into a technical bull market for the first time since the easing of Covid restrictions in China towards the end of 2022.
Leading the charge in this upward movement are technology stocks, which have been revitalized by a spike in electric vehicle sales, share buyback initiatives within the sector, and the approval of new online games by Chinese authorities. This resurgence is part of a broader trend, with the Hang Seng index poised to join other Chinese indexes that have recently hit similar milestones, driven by the return of foreign investments and China's concerted efforts to stabilize its markets.
Companies like Tencent Holdings Ltd. (0700.HK) and Alibaba Group Holding Ltd. (BABA, Financial) are at the forefront of this rally, thanks to strategic share buybacks and favorable developments in China's gaming industry. The recovery of Chinese stocks from previous downturns has been supported by various measures from Beijing, including state fund purchases, restrictions on quantitative funds, and initiatives to alleviate the housing crisis. These actions are gradually convincing global investors of the potential for growth revival, shifting the investment strategy narrative from "buy India, sell China" to a more China-favorable outlook.
The optimism towards China's economy is further bolstered by recent positive economic data. For instance, Chinese tourists' spending during the Qingming holidays saw a 13% increase compared to the pre-pandemic levels of 2019. This is in addition to a manufacturing activity index reaching its highest point in a year, signaling potential economic recovery.
Notably, some major companies have exceeded expectations with their earnings reports. PetroChina Co. (PTR, Financial), for example, announced record annual profits. The sustained purchasing of Hong Kong shares by mainland Chinese traders for the ninth consecutive month in March has also contributed to the market's rally. Despite this progress, the HSCEI index remains approximately 23% below its peak during last year's reopening rally. A more durable recovery will depend on various factors, including Beijing's success in addressing its property challenges, potential policy easing, and improved relations with the U.S.
