Hong Kong: Stocks retreat after biggest two-day rally since 1998

[HONG KONG] Chinese stocks in Hong Kong retreated after a historic two-day surge as investors assessed the feasibility of Beijing's pledge to stabiliSe financial markets and any risks stemming from its close ties with Russia.

The Hang Seng China Enterprises Index lost as much as 2.7 per cent in early trading on Friday. It rose 21 per cent in the previous two sessions, the most since 1998.

The Hang Seng Tech Index slid 4.6 per cent, as heavyweights including Tencent Holdings and Alibaba Group Holding fell after a two-day rally of at least 30 per cent each.

Investors are taking a step back after Beijing's concerted effort to shore up confidence brought a knee-jerk jump in equities. Still weighing on their minds are risks including possible US sanctions on China given its ties with Russia and its market impact.

Skeptics have also sought concrete policy steps before calling an end to the rout.

Investors will be keenly watching the planned meeting this evening between Chinese President Xi Jinping and US President Joe Biden for cues.

A gauge of Chinese stocks traded in the US also cooled off overnight, falling 4.6 per cent after a 33 per cent surge in the previous session.

"I am hopeful that the meeting between Xi and Biden will send out positive signals of soothing Sino-US relations that will help stabilise market sentiment", said Dickie Wong, executive director of research at Kingston Securities.

The fall we are seeing this morning with Hong Kong stocks "is more of a pullback from the previous two day's significant surge," Wong said.

China's muted response to Russia's invasion of Ukraine has hardened views within the US administration that Xi may be moving closer to supporting Moscow as the conflict continues, according to several people familiar with the matter.

Chinese officials deny that they have tacitly backed the invasion and have rejected US reports that Russia asked Beijing for financial and military assistance shortly after touching off the war, labeling them disinformation.

On the positive side, expectations are growing for the People's Bank of China to soon take easing steps to spur the economy, which may aid market sentiment.

A growing number of economists anticipate banks will lower their quotes for the loan prime rate, the de facto benchmark lending rate, when it's announced by the PBOC Monday.

Growing indications that China may be tweaking its stringent Covid-19 policy that's been hurting the economy are also welcomed by investors.

China will "strive to achieve the maximum prevention and control effect at the least cost and minimise the impact of the epidemic on economic and social development," Xi told a meeting late on Thursday of the politburo standing committee.

Shares on the mainland fared relatively better on Friday, with the CSI 300 Index losing 0.5 per cent as of 10.09 am local time. BLOOMBERG