Hong Kong stocks record best week in more than a decade

CNN business

Global investors have two big questions on their minds: When will the Federal Reserve become less aggressive in its campaign against inflation? And does Beijing plan to relax its strict “zero-Covid” policy soon?

Markets were disappointed this week when the Fed signaled that it may raise interest rates even more than expected, affecting stocks in the United States and Europe. But in Asia, investors have been excited by speculation that China’s coronavirus restrictions could be eased.

Hong Kong’s Hang Seng Index (HSI) rose more than 5% on Friday and ended the week up 8.7%, its biggest gain since 2011. China’s Shanghai Composite ( SHCOMP ) rose 5.3% this week, its best performance in more than two years.

The rally was a hot sell after the Chinese Communist Party Congress last month. Investors were disappointed that Chinese leader Xi Jinping did not introduce stronger measures to combat the sharp economic slowdown. He too he offered no sign that the country would depart from its rigid approach to contain the spread of Covid-19, which has stifled growth.

In recent days, the lockdowns have caused major disruptions for Apple ( AAPL ) Foxconn and Disney ( DIS ) suppliers, as well as car manufacturers and fast-food restaurants.

David Chao, global market strategist at Invesco Asia-Pacific, said some of those investor anxieties appear to have lifted.

“There’s so much pessimism and negativity around China, around China’s growth, and I think a lot of that has already been discounted,” Chao said. Passing the party congress has eliminated a major source of uncertainty, he added.

Social media chatter that China could soon reopen its border with Hong Kong fueled market optimism on Friday, as did a Bloomberg report that US auditors had completed an inspection of Chinese companies ahead of schedule. The Hang Seng rose 5.4%, and the Shanghai Composite rose 2.4%.

Chinese health officials have scheduled a press conference for Saturday amid growing frustration and resentment over zero-Covid rules and the resulting lockdowns.

“The risk, of course, is that there could be some disappointment here,” said Mitul Kotecha, head of emerging markets strategy at TD Securities, speaking of the potential for looser coronavirus restrictions. “There are only rumors and speculations at the moment.”

Shares in China and Hong Kong have languished this year as investors dimmed the outlook for China’s economy.

The country, a crucial engine of global growth, has been hit by a crisis in its real estate sector. At the same time, Beijing’s approach to Covid continues to hurt businesses and reduce consumer spending.

The International Monetary Fund estimates that China’s economy will expand by just 3.2% in 2022 and 4.4% in 2023, a sharp decline from 8.1% growth in 2021.

The Hang Seng is down 31% year-to-date, compared with a 22% drop for the S&P 500. The Shanghai composite is 16% lower in 2022.

Chao said investors faced the possibility that China could grow much more slowly as it tries to reduce debt reliance and as investment in the real estate sector, which has recently accounted for 30% of gross domestic product, shrinks. .

“We’re not going to see that kind of investment-driven economic growth in the next 10 years,” Chao said.

But, he stressed, this is not necessarily a bad thing, as growth is starting to become more sustainable. And even if China’s economy is growing at 3% or 4%, that will make it look much better than recession-prone Europe and the United States.

“From what I can see, it’s clear that there’s capital on the sidelines,” Chao said. “There are investors waiting to jump on the China story.”

— Steven Jiang contributed to this report.