The CSI 300 benchmark has gained nearly 20% since an October low as investors bet on the positive impact of China's dismantling of strict COVID-19 control rules. In a policy U-turn, China dropped its zero-COVID strategy in December. "Thanks to the rapid transition to herd immunity and the release of pent-up demand, there has been a notable recovery in in-person services consumption during the week-long holiday," Nomura said in a note.
Shares in new energy climbed 1.9%, automobiles soared 3.1%, and consumer discretionary added 1.2%. Official data showed Lunar New Year holiday trips inside China surged 74% from last year after authorities scrapped COVID travel curbs, while almost a quarter more domestic Chinese tourism trips have been made during the holidays.
Yuekai Securities analysts said a steady recovery of consumption, a general rise in overseas markets during the holidays and accelerated foreign inflows should help get Chinese-A shares off to a "good start" after the holiday. China's COVID situation also cheered investors, after the Center for Disease Control and Prevention said critically ill cases in China are down 72% from a peak early this month. Foreign investors extended their buying spree in China stocks to a 14th session on Monday, with net purchases of 18.6 billion yuan ($2.76 billion) via the Stock Connect scheme. However, the CSI 300 Real Estate Index lost 2.1% and the Hang Seng Mainland Properties Index plunged 4.7%, respectively. Residential sales in 40 major cities declined 14% from a year earlier during the Lunar New Year week ending Jan. 27, according to China Real Estate Information Corp. "The consumption rebound was mainly limited to catering and tourism. Actually, shopping mall foot traffic, new home purchases and auto sales data suggest big-ticket consumption may remain subdued," said Nomura analysts. Tech giants listed in Hong Kong slumped 4.8% to drag the city's Hang Seng benchmark lower, with index heavyweights Alibaba and Tencent down roughly 7% each.
China International Capital Corp analysts said Hong Kong shares might experience profit-taking fluctuations during the rebound, but there is still upside underpinned by China's economic recovery and improving overseas liquidity. Goldman Sachs said investor positioning has not fully caught up with the improving investment case for China. "The downside risk of maintaining underweight or shorting Chinese stocks is meaningfully higher than going tactically long," they said. ($1 = 6.7503 Chinese yuan) (Reporting by Shanghai Newsroom; Editing by Tom Hogue, Kenneth Maxwell and Christina Fincher)
