Chinese stocks rebound on hope reopening; Morgan Stanley upgrades rating

Chinese stocks posted strong gains on Monday after major cities in China reportedly eased further Covid-related restrictions, a positive sign for an economy that has struggled with strict virus measures for over two years.

The rally comes after Beijing and Shenzhen announced over the weekend they would lift measures requiring commuters to show negative Covid test results before traveling, despite the recent spate of Covid cases.

The Hang Seng TECH Index, which represents the 30 largest Hong Kong-listed technology companies, rose 8% in Asian trading.

The jump builds on the index’s performance so far this quarter and is up about 20% year-to-date. But it’s still in bear market territory, down around 27% year-to-date.

Tech heavyweights Bilibili are up more than 25%, Tencent are up 6% and Meituan are up more than 3%, while Alibaba is up 8% and Xiaomi is up about 11%. Electronic vehicle manufacturer Xpeng up 24%, leading gains for the broader index, with Li Auto up 12% and Nio up more than 15%.

The Hang Seng Index rose 4%, while China’s CSI 300 Index, which tracks the largest and largest stocks listed on the mainland, rose nearly 2%.

The rally in the stock market is due to a “clear” path away from China’s zero-Covid policy, Hao Hong of Grow Investment Group told CNBC’s Street Signs Asia.

“The direction is very clear because before, many people and markets had many doubts about whether China is serious about moving forward with phasing out Covid-zero,” he said.

“Now it seems to most people that Covid-zero is going to be phased out and that’s why the market is reacting very strongly,” he said.

of China Country- and the offshore yuan also continued to strengthen, breaching 7-mark against the US dollar for the first time since mid-September. Oil prices also jumped early in the Asian session, with Brent crude futures and US West Texas intermediate futures climbing over 2% on hopes of rising demand from China.

The recent change in China’s Covid regulations also increased optimism for investors betting on further reopenings in the wider region, extending to Macau’s casino sector.

Hong Kong-listed casino operators also posted significant gains, with MGM China up 19%, Wynn Macau up 16% and Sands China up 13%. Galaxy entertainment increased by 6% and SJM Holdings more than 7% gained.

Morgan Stanley’s strategists have upgraded the recommendation rating on Chinese equities to overweight following news that China is further easing some of its Covid restrictions.

Strategists led by Laura Wang said in a Sunday note that the upgrade marks the end of the company’s equal-weight stance on Chinese stocks, which it has held for 23 months since January 2021, or nearly two years.

Morgan Stanley noted several factors pointing to “significant positive development” for Chinese equities since November, including what the company sees as “a confirmed path towards a definitive post-Covid reopening”.

A “path to reopening is finally laid, likely bumpy but with no turning back,” the note said, adding that a clear direction for opening up the nation was affirmed as health officials announced detailed plans to promote older vaccinations.

– CNBC’s Abigail Ng and Michael Bloom contributed to this report