Shares in mainland China and Hong Kong surged as state media threw their weight behind a rally driven by hopes of a swift economic recovery from the coronavirus pandemic.

China’s CSI 300 index of Shanghai- and Shenzhen-listed shares jumped as much as 4.3 per cent on Monday, the biggest one-day rise since February 2019. The surge extended recent gains after closing at a five-year high on Friday.

Hong Kong’s Hang Seng index added 3.5 per cent to technically enter a bull market, usually defined as a 20 per cent rise.

Traders said China’s retail investors — a dominant force in the mainland’s equity markets — were piling into stocks in the technology and internet sectors as they bet on the country’s economic recovery gaining momentum.

Optimism was also stoked by a front-page editorial in the state-run China Securities Journal on Monday, that talked up the prospect of a “healthy” bull market. The article said investors could look forward “to the wealth effect of the capital markets”.

Dickie Wong, executive director at Kingston Securities, said: “Individual investors in China are really optimistic about the economic reopening”, adding that traders were for now willing to look past risks linked to rising US-China tension.

Data released on Friday showed that Chinese services sector activity rose in June, with consumer spending rebounding following the coronavirus lockdown.

Line chart of CSI 300 of Shanghai- and Shenzhen-listed shares showing Economic recovery drives rally in China stocks

Chinese traders would now be watching official media for further indications they should buy into the rally, said Ken Cheung, a strategist at Mizuho Bank. “Bullish sentiment has been building up over past few days,” he added. 

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Elsewhere, Japan’s Topix added 1.4 per cent while South Korea’s Kospi rose 1.7 per cent.

Futures suggested the S&P 500 would open up 1.1 per cent when US trading resumes later on Monday following the three-day weekend. London’s FTSE 100 was tipped to open 1.6 per cent higher.

The upbeat mood in equity markets came despite new waves of the coronavirus in a number of countries, including the US. That could dent hopes for a strong, V-shaped recovery in the global economy fuelled by data last week that showed the US added nearly 5m jobs in June.

The US reported its highest number of Covid-19 infections for a Sunday, at more than 42,500, as the country celebrated the July 4 holiday weekend. That was in addition to the more than 52,000 cases reported on Saturday.

A number of so-called Sun Belt states, such as Arizona and Florida, have been hit hard by the current wave of infections, raising fears of further economic lockdowns.

Australia’s S&P/ASX 200 was little changed as a wave of infections in Victoria prompted the closure of the state’s border with neighbouring New South Wales.

After global stock markets rebounded from March lows, some investors have indicated they could sit on the sidelines until they see stronger evidence of a recovery in corporate earnings.

“We expect global equities to still be around current levels in 12 months,” wrote analysts at Citi. “We would not chase markets higher from current levels, but would prefer to wait for the next dip.”

Oil prices were holding near four-month highs but without any clear direction as investors digested the potential impact on demand of new US lockdowns.

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Brent crude, the international benchmark, added 0.6 per cent to $43.04 per barrel. West Texas Intermediate, the US marker, slipped 0.4 per cent to $40.47 per barrel.

The yield on US 10-year Treasuries, viewed by investors as a haven asset, rose 0.03 percentage point to 0.694 per cent. Bond prices fall as yields rise.

Additional reporting by Thomas Hale in Hong Kong

Via Financial Times