China, HK stocks extend rally as Beijing eases Covid rules

SHANGHAI: China and Hong Kong stocks rose on Friday as investors continued to bet on companies that stand to gain from China’s COVID policy pivot, driving up consumer and healthcare stocks.

Property shares surged on signs of fresh support by Chinese state banks, as well as developer Sunac China’s restructuring proposal.

China’s benchmark CSI300 Index gained 1% to a 12-week high, while the Shanghai Composite Index edged up 0.3%.

Hong Kong’s Hang Seng Index climbed 2.3%, as an index tracking mainland developers surged 10% to a four-month high.

Investors are growing optimistic about China’s recovery, as authorities dramatically loosened strict COVID-19 measures this week, slashing testing, quarantine and lockdown requirements.

The government also plans to boost vaccination, especially among the elderly, measures investors see as conducive to an eventual reopening of the economy.

“With a set reopening path, we believe Chinese equities will outperform the broad EM and global markets,” Morgan Stanley said in a note to clients on Friday.

“We believe execution follow-through and other factors would help lift market sentiment,” said the Wall Street bank, which upgraded Chinese equities earlier this week.

Reflecting increasing optimism toward China, the country’s stock market recorded $8.5 billion in foreign inflows in November, according to the latest data from the Institute of International Finance. That is a stark contrast to heavy outflows in the first half of this year.

Investors are looking beyond data showing lingering weakness in the economy, as China’s factory-gate prices recorded an annual fall for a second month in November while consumer inflation slowed.

Investors continue to pile into healthcare and consumer stocks, betting they will benefit from eased COVID rules.

Property shares extended their rally as more state banks vowed support to the struggling sector.

Sentiment was also aided by news that Sunac proposed a preliminary restructuring framework that includes a deleveraging plan to convert $3 billion-$4 billion of existing debt and certain shareholder loans into shares or equity-linked instruments.