Chinese stocks jump as Beijing signals more economic support

Chinese equities rallied by the most in ten weeks as traders turned buyers of everything from baijiu producers to construction firms on expectations of increased support for the economy.

The benchmark CSI 300 Index rose 2.6%, its best day since May 25. Consumer shares led gains, with Kweichow Moutai Co. and Wuliangye Yibin Co. adding at least 4.5%. In Hong Kong, the Hang Seng Index gained 1.1%.

Monday’s move higher follows a much-watched Politburo meeting Friday, which was seen to indicate that authorities will likely take more steps to help struggling small businesses, boost fiscal spending and possibly reduce the reserve requirement ratio for banks again. Bets on further easing boosted Chinese sovereign bonds.

“Some investors are buying dips thinking most of the bad news on regulations is behind them,” said Margaret Yang, a strategist at DailyFX in Singapore. “It has been oversold. The resurgence of virus cases is also aiding hopes that PBOC may ease policy in the second half.”

The gains follow a volatile week for the world’s second-largest equity market, after a ban on swathes of the tutoring industry from making profits sparked concerns that other industries could be targeted.

While China continued to tighten rules on technology firms on Friday, there have been attempts to ring-fence its clampdown, with the securities regulator meeting banks to reassure them.

“The Politburo meeting has emphasized stability again, so the downside for stocks won’t be too large,” said Chen Shi, fund manager at Shanghai Jade Stone Investment Management Co. Investors may also find comments from the Chinese securities regulator over the need for talks with its U.S. counterpart over initial public offerings reassuring, Chen said.

China’s securities regulator on Sunday called for talks with its American counterpart after the U.S. Securities and Exchange Commission increased disclosure requirements for IPOs of Chinese companies. CICC analysts noted that this could “further favor listings in Hong Kong.” Hong Kong Exchanges & Clearing Ltd. rose 4.3%.

Infrastructure-related stocks were among top gainers on Monday, after the Politburo meeting signaled that the sale of special local government bonds will help accelerate second-half fiscal spending to support the economy. Construction shares gained, with Sany Heavy Industry Co. rising by the 10% daily limit in Shanghai.

Chinese steel stocks dropped, with some of them falling about 10% each, after a top industry body said there could be wider crude-steel output cuts as the government moves to reduce emissions in key sectors. Shares in Baoshan Iron & Steel Co., the sector’s bellwether by market value, slumped as much as 9.7%, the most since February 2020. Angang Steel Co. fell as much as 9.9% in mainland trading.

A rally in China’s government bonds accelerated, as the yield on 10-year sovereign notes slid as much as 5 basis points to 2.8%, the lowest since June 2020. Futures contracts on the 10-year government bonds extended last week’s rally, rising to a fresh one-year high.