(Bloomberg) — Chinese stocks extended gains in the afternoon as President Xi Jinping’s emphasis on technology development and a slew of central bank statements reignited optimism over policy support.
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The CSI 300 Index closed up 3.6%, rebounding from a three-day loss, with chip shares leading the advance. A gauge of Chinese tech stocks listed in Hong Kong was up more than 7% at its session high.
Friday’s rebound provides a welcome relief for investors, who have been clamoring for more stimulus after a historic rally lost momentum. Xi’s comments that science and tech should be at the forefront of Chinese modernization led to a 20% gain in chipmakers Semiconductor Manufacturing International Corp. and Cambricon Technologies Corp.
His statement landed as markets were getting a boost from the People’s Bank of China, which kicked off a specialized re-lending facility to help companies buy back shares and a swap facility that offers institutional investors liquidity to purchase stocks. The developments showed the PBOC is following through on its promises announced at a blockbuster briefing in late September.
“Xi’s remarks on tech have been the perfect trigger for a rebound that many had been waiting on the sidelines for,” said Xu Dawei, a fund manager at Jintong Private Fund Management in Beijing. “His remarks have great significance in showing the policy direction. With the PBOC’s relending tool, the moves may help sustain the bull momentum.”
Fresh data released Friday showed authorities need to accelerate the stimulus implementation to reach the annual growth target, with economic expansion slowing in the third quarter. New home prices fell for a 16th month, dropping at almost the same pace as in August.
“While the policies were announced on Sept. 24, the PBOC has officially announced today that they have started implementing measures that will support the stock price,” said Chunai Jean, senior strategist at Daiwa Asset Management in Tokyo. “We believe that this has effectively improved market sentiment.”
The gains driven by the central bank measures, however, will likely be capped unless met by an equally-strong expansion in fiscal spending. Authorities have repeatedly disappointed investors with piecemeal steps after the surprise stimulus blitz unveiled by the central bank in late September.
The onshore equity benchmark slipped into a correction on Thursday after a high-profile press briefing on measures to support the property market ended with no major outlays.
Views are increasingly diverging on whether investors should chase the rally at this stage. Li Bei, founder of Shanghai Banxia Investment Management Center, wrote in a WeChat post earlier this week that now is the time for retail investors to buy stocks. That’s despite caution from the likes of Morgan Stanley Wealth Management that the stimulus measures aren’t enough to repair the struggling economy.
“Xi’s comments helped stocks in the tech and industrial sectors, but the broad market rally might be more on the back of the PBOC’s comments,” said Xin-Yao Ng, investment manager of Asian equities at abrdn plc. “I see more clearly a stance toward reducing downside risk for the economy including asset prices, but still lacking commitment to reflate the economy.”
–With assistance from Abhishek Vishnoi, April Ma and Winnie Hsu.
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