SHANGHAI: Chinese A-shares posted their biggest percentage gain since late May on Monday, as investors snapped up stocks battered by a sell-off last month despite rising worries around a surge in new coronavirus cases.

Hong Kong shares also rose, with the Hang Seng index ending 1.06% higher after touching its lowest point since early November last week. Chinese H-shares listed in Hong Kong finished up 1.12%.

The Shanghai Composite index finished the day up 1.97% at 3,464.29 points and the blue-chip CSI300 index ended 2.55% higher. It was the biggest daily rise since May 25 for both indexes.

The gains follow a near 5.5% fall for the CSI300 last week, capping its biggest monthly loss since October 2018 after a string of regulatory moves aimed at the after-school education, tech and property sectors.

“I think the China A-share market became an unnecessary victim of the recent regulatory events. The so-called ‘clampdown’ is really just on a few sectors and Chinese ADRs rather than A-shares in general,” said Qi Wang, chief executive officer at MegaTrust Investment in Hong Kong.

“Seriously, what’s the connection between closing down cram schools and people consuming more or less liquor, for example? I don’t see any.”

Both the CSI300 and Shanghai Composite indexes had fallen around 1% in early trade on rising concerns over a domestic surge in Delta variant COVID-19 infections. China on Monday reported 98 new confirmed coronavirus cases in the mainland for the day earlier, the highest daily rise since Jan. 24.

Those concerns also weighed on the fixed income market, where benchmark Chinese government bond (CGB) yields dropped to their lowest level in more than a year. The most-traded CGB futures contract for September delivery ended up 0.23%.

Adding to worries over the economic outlook, a private sector survey showed China’s factory activity growth fell to a 15-month low in July.

But by mid-morning, investors’ focus shifted to the attractive valuations of stocks after last week’s rout. The CSI300 financial sector sub-index finished up 2.2% and the consumer staples sector jumped 4.85%.

Data from Refinitiv showed foreign investors were net buyers of A-shares on Monday, with inflows through the Northbound leg of the Stock Connect programme topping 9.55 billion yuan ($1.48 billion).

“We believe short-term volatility creates opportunities for long-term investors. The A-share market should resume an upward trajectory after domestic credit growth bottoms,” Meng Lei, A-share strategist at UBS Securities said in an emailed comment.

($1 = 6.4631 Chinese yuan.