SHANGHAI: China stocks surged and the yuan firmed past the strong side of the closely watched 7-per-dollar level on Monday, both hitting their strongest levels since September, as investors welcomed China’s easing of domestic COVID-19 restrictions.
The blue-chip CSI 300 Index closed up 2%, while Hong Kong’s Hang Seng Index climbed 4.5% to end at the highest level since Sept. 1.
The upbeat mood also sent China’s yuan firming past 7 against the dollar in onshore and offshore markets, with the onshore yuan finishing domestic session at 6.9561 per dollar, the strongest close since Sept. 13.
Other Asian shares, meanwhile, extended their rally, as investors hoped a China reopening would eventually brighten the outlook for global growth and commodity demand.
More Chinese cities announced an easing of coronavirus curbs on Sunday, and there were also reports Beijing might lower the threat classification for COVID-19.
“The China reopening trade maintained its strong momentum in the beginning of this week. The positive headlines continued to fuel risk sentiment in China,” said Ken Cheung, Chief Asian FX Strategist at Mizuho Bank.
Morgan Stanley updated China equity to overweight, citing “multiple positive developments alongside a clear path set towards reopening.” The Wall Street bank joined a slew of global institutions, including UBS and Goldman Sachs in turning bullish toward China after Beijing moved to “optimize” its anti-virus measures.
In mainland market, consumer staples rose 1.4%, transport companies jumped 3%, while infrastructure stocks soared 5.3%.
Standard Chartered said it expects the country to remove most COVID restrictions by the second quarter of 2023, resulting in household consumption recovering to the pre-pandemic (2017-19) trend level in the second half.
In Hong Kong, tech giants advanced 9.3%, marking their longest winning streak in more than one year. Macau casino operators surged 12.1% on expectations that China’s eventual reopening would boost their revenue.
“In the near term, the internet platform companies should fare better. Intuitively, as cases soar, people will choose to stay home to minimize the contagion risks,” said Hao Hong, chief economist of Grow Investment Group.
Nomura analysts also cautioned that “the road to reopening may be gradual, painful and bumpy”, although they “are hopeful too”.
A private-sector business survey showed on Monday that China’s services activity shrank to six-month lows in November, as more COVID outbreaks and widening containment measures weighed on demand and operations.
Analysts warned of disruption to the consumption and manufacturing sector due to surging cases as China gradually eases COVID restrictions, which might further dent business activity in the near term.