China markets kick off 2023 with a bang as policy shift quickens

CHINESE shares are off to a strong start in 2023, putting behind a dismal year as fears of isolationist policies give way to signs of an economic powerhouse turning friendlier to both the outside world and its own entrepreneurs.

The MSCI China Index has risen 5.3 per cent since trading resumed on Tuesday (Jan 3), marking the best start to any year since 2009, after having lost nearly 24 per cent in 2022. Leading the rally were debt-laden property developers and technology firms, emerging from two years of a regulatory storm. 

The world’s second-biggest stock market is looking like an investor darling again, as optimism about the eventual benefits of Beijing’s abrupt end to Covid curbs outweighs concerns over the short-term pain it inflicts. Adding to that is a series of policy developments signalling the return of economic pragmatism, including plans of fresh property support, discussions of ending a ban on Australian coal imports, and progress towards concluding a crackdown on Jack Ma’s financial tech behemoth.

The euphoria has spread beyond equities, sending the yuan to a four-month high and triggering sharp gains in the US dollar bonds of some of China’s distressed developers. 

“These directly remove some of the pillars of risk for China – property, geopolitical and regulatory headwinds,” said Marvin Chen, a Bloomberg Intelligence analyst, referring to the slew of “active” policies. 

Concerns over a further worsening of China’s property debt crisis receded further on Wednesday on the back of a Bloomberg News report that Beijing’s authorities are weighing new measures to ease the cash crunch plaguing some systemically important developers. The resumption of approvals for private equity funds to raise money for residential housing developments also lifted sentiment. 

A Bloomberg gauge tracking Chinese developers rose 5.3 per cent on Wednesday, its biggest gain in more than three weeks.  

Tech giants from Alibaba to Tencent also surged, after regulators approved a plan by billionaire Jack Ma’s Ant Group to raise 10.5 billion yuan (S$2 billion) for its consumer unit. The move resolved a key hurdle for Ant, whose destiny has been emblematic of a two-year-long clampdown on the tech sector, as it seeks to meet requirements to obtain a licence to operate as a financial holding company.

Other conciliatory gestures from Beijing – from discussions of plans to resume some imports of Australian coal after a more-than-two-year ban, to the rare effusive praise of Americans by China’s new foreign minister – brought relief to investors wary of years of geopolitical tensions.

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Foreign investors bought a net 1.8 billion yuan of shares listed in Shanghai and Shenzhen on Wednesday, while their mainland counterparts purchased the most Hong Kong stocks in more than three weeks, as indicated by Bloomberg-compiled data. 

Their buying also came amid signs that Covid infections may be peaking in some of China’s major cities. Separately, Beijing has pledged to expand fiscal spending as part of efforts to boost economic growth.

To be sure, other observers say it remains too early to turn outright bullish on China. 

“We do need to have a little bit more clarity in the next few weeks in terms of how the Covid situation unfolds in China,” said Tai Hui, JPMorgan Asset Management’s chief market strategist for the Asia-Pacific. “We’ve yet to see really convinced investors coming back in from the US, from Europe.” BLOOMBERG