A gauge of China tech shares traded in Hong Kong closed just shy of entering a technical bull market over expectations of further stimulus for the nation’s flagging economy.
The Hang Seng Tech Index climbed 2.9%, extending gains from a May low to 19.7%. While shares had been lifted in recent months thanks to easing regulatory constraints and stimulus hopes, a 34% surge in XPeng Inc. after investment plans by Volkswagen AG propelled the gauge higher. Peers including Nio Inc. and Li Auto Inc. also advanced.
The rally comes on the heels of a Politburo meeting earlier this week, where China’s top leaders pledged more policy support to boost consumption and the ailing real estate sector. That led to a 6% surge in the index on Tuesday, the most in almost five months.
“Market sentiment is improving with clearly supportive rhetoric from the government over the past week,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “VW’s investment in XPeng also boosted investor appetite for the EV sector.”
Chinese tech stocks have had a volatile year, weighed by scars from the years-long crackdown on private enterprises as well as tense US-China relations. Worries about a consumption slowdown, partly due to record-high youth unemployment rate, have hit the nation’s Internet giants which rely on ad spending and revenues from online shopping and gaming.
For its part, the Hang Seng Tech Index is up more than 5% this year, with traders attributing the gain this week partly to investors covering their short bets. That’s compared with a 42% surge in the Nasdaq 100 Stock Index year to date.
But the Chinese market may finally be in for a turnaround. On Wednesday, analysts at Goldman Sachs Group Inc. wrote that even with structural growth concerns, the Politburo readout suggests that “the policy put has been activated” and that the window is open for a tactical bounce. In a separate note on Thursday, the Wall Street bank said that hedge fund clients net bought Chinese stocks at the fastest clip in nine months after the meeting.
Brokers including Morgan Stanley say that swift follow-through of actionable policy measures is now needed to ensure the rally can hold.
Meanwhile, Hong Kong’s benchmark Hang Seng Index closed up 1.4%, while a gauge of Chinese shares traded in the financial hub rose 1.9%. In a sign of profit-taking, mainland investors net sold HK$3.68 billion ($472 million) of Hong Kong stocks, after buying HK$7.78 billion on Wednesday.
