(March 1): Chinese markets rallied as unexpectedly strong manufacturing data suggested that the economic recovery is gathering pace, emboldening traders to pile in after weeks of heavy selling.   

The Hang Seng China Enterprises Index jumped 5.1% helped by tech and property stocks, rebounding after a loss of more than 11% in February. The Hang Seng Index climbed 4.2%, while the offshore yuan strengthened the most since December. Other assets across Asia also gained. 

Wednesday’s (March 1) rebound marks a reversal from recent weeks, when a lack of positive catalysts saw investors take profits on the sharp China reopening rally that began in November. Traders are now positioning for the National People’s Congress (NPC) that starts this weekend, betting on positive policy announcements, particularly for the consumption and property sectors.

“It’s more of new month positioning because I think a lot of the selling was done in February,” said Kerry Goh, the chief investment officer of Kamet Capital Partners Pte Ltd. “Things are coming back in a strong way.”

Still, some “global funds are waiting for a better entry point, some signs of policy stability from the Congress, and they want to continue to monitor economic data points”, he said.

China’s manufacturing activity recorded its highest monthly improvement in more than a decade in February, while services also showed a stronger-than-expected performance. With home sales rising for the first time in 20 months, the string of positive data helped allay concerns over the nation’s recovery from the damage induced by its Covid Zero policy.  

February losses

Such concerns, along with geopolitical worries, brought huge losses in February, with the Hang Seng China gauge erasing all its gains for 2023, and Hong Kong’s benchmark Hang Seng Index sliding into a correction.

Where the market goes from here will depend much on the outcome of the congress. A lack of stimulus or worrying political developments may spur selling, just like in the wake of the October political gathering, when Chinese President Xi Jinping’s power grab resulted in a historic rout.

“I think we are seeing a turning point where manufacturing is picking back up,” Elizabeth Kwik, abrdn plc’s Asian equities investment director, said on Bloomberg TV. “There is a lot of labour available in China” unlike in other economies that opened up earlier, suggesting that the labour shortage won’t be a constraint for the recovery, she added.  

Broad rally

The CSI 300 Index of onshore stocks ended 1.4% higher. Foreign investors added a net seven billion yuan (US$1 billion or RM4.55 billion) of Chinese shares via the trading links with Hong Kong, ending five straight sessions of selling. 

All stocks on the 50-member Hang Seng China gauge advanced, highlighting broad optimism across sectors. A gauge of Macau casino shares jumped 5.1% after gaming revenue improved. 

The offshore yuan extended gains, advancing 1.1% to 6.8805 per dollar. The Bloomberg JPMorgan Asia Dollar Index climbed 0.6%, set for its biggest gain in a month, with the Thai baht leading the advance. In the commodities market, iron ore futures in Singapore surged as much as 2.3%. 

“Market participants will seek confirmation of a light-touch approach to, if not downright easing of, regulatory restrictions in the property and tech sectors — crucial for reviving business confidence,” Aninda Mitra, the head of Asian macro and investment strategy at BNY Mellon Investment Management, wrote in a note, referring to the NPC.