China Stocks Rebound as Fed Concerns Ease, Dip-Buyers Emerge

Chinese stocks staged a sharp rebound as optimism that the Federal Reserve will pause interest-rate hikes in June helped rekindle risk sentiment.

(Bloomberg) — Chinese stocks staged a sharp rebound as optimism that the Federal Reserve will pause interest-rate hikes in June helped rekindle risk sentiment.

The Hang Seng China Enterprises Index rose as much as 4.3%, the most in three months, led by property and technology companies. The Hang Seng Tech Index, whose members are mostly growth names that usually benefit from a lower US rate, added as much as 4.9%. 

The rally comes after weeks of selloff that saw the HSCEI gauge tumble into a bear market on disappointing economic data and rising Sino-American tensions. While most of the worries over China remain, sentiment took a turn for the better as Fed officials signaled they plan to keep interest rates steady in June. Key gauges were hovering near oversold levels, suggesting it was about time for some dip-buying. 

“The Fed’s potential pause in rate hikes at the June meeting helped boost sentiment for tech shares in Hong Kong today and released some pressure from yuan depreciation,” said Steven Leung, executive director at UOB Kay Hian Hong Kong Ltd.

READ: Traders More Comfortable With a Fed Pause as Key Jobs Data Looms

Chinese stocks have been largely trending downward since the reopening rally cooled at the end of January. Bets that they will soon rebound had proven elusive, and investors are now waiting to see if the gains Friday will be sustainable. The latest data on manufacturing and services showed the economy is on a wobbly footing, while the yuan’s weakness have accelerated outflows.  

Strategists at Goldman Sachs Group Inc. slashed the target for the MSCI China Index to 70 from 80 as they reduced earnings estimates and saw a stronger forecast for the greenback versus the yuan. But they retained an overweight recommendation, adding that investors’ concerns have been priced in. 

On the mainland, the CSI 300 benchmark advanced as much as 1.4%. Foreigners added 8 billion yuan ($1.1 billion) of onshore shares as of mid-Friday via trading links with Hong Kong, on track for the largest net inflow since February. 

Investors are awaiting new data releases in the coming weeks on inflation and credit to gauge the health of the economy. 

“I do think there is some room for the Hong Kong market to rebound,” though they will still lag the peers in the US and EU, said Dickie Wong, director of research at Kingston Securities Ltd. “There are a lot of concerns over China’s economic recovery and the youth unemployment rate is very high. The 5% GDP target looks increasingly unattainable.”

(Updates with foreign flows data. An earlier version was corrected to clarify quote in final paragraph.)

More stories like this are available on bloomberg.com

©2023 Bloomberg L.P.