China markets start 2023 with a bang as Covid policy shift hastens

Chinese shares are off to a strong start in 2023, putting behind a dismal year as fears of isolationist policies give way to signs of an economic powerhouse turning friendlier to both the outside world and its own entrepreneurs.

The MSCI China Index has risen 5.3% since trading resumed on Tuesday, marking the best start to any year since 2009, after losing nearly 24% in 2022. Leading the rally were debt-laden property developers and technology firms emerging from two years of a regulatory storm. 

The world’s second-biggest stock market is looking like an investor darling again, as optimism about the eventual benefits of Beijing’s abrupt end to Covid curbs outweighs concerns over the short-term pain it inflicts. Adding to that is a series of policy developments signaling the return of economic pragmatism, including plans of fresh property support, discussions of ending a ban on Australian coal imports and progress toward concluding a crackdown on Jack Ma’s financial tech behemoth.

The euphoria has spread beyond equities. The offshore yuan strengthened 0.5% against the dollar, while dollar bonds of some of China’s distressed developers saw sharp gains.

“These directly remove some of the pillars of risks for China — property, geopolitical, and regulatory headwinds,” said Marvin Chen, a Bloomberg Intelligence analyst, referring to the slew of “active” policies. 

Concerns over a further worsening of China’s property debt crisis receded further Wednesday after Bloomberg News reported that authorities are weighing new measures to ease the cash crunch plaguing some systemically important developers. The resumption of approvals for private equity funds to raise money for residential housing developments also lifted sentiment. 

A Bloomberg gauge tracking Chinese developers rose 5.3% Wednesday, its biggest gain in more than three weeks.  

Tech giants from Alibaba Group Holding Ltd. to JD.com Inc. surged more than 6% in US premarket trading, after regulators approved a plan by billionaire Jack Ma’s Ant Group Co. to raise 10.5 billion yuan ($1.5 billion) for its consumer unit. The move resolved a key hurdle for Ant, whose destiny has been emblematic of a two-year-long clampdown on the tech sector, as it seeks to meet requirements to obtain a license to operate as a financial holding company.

Other conciliatory gestures from Beijing — from discussions of plans to resume some imports of Australian coal after a more than two-year ban to the rare effusive praise of Americans by China’s new foreign minister, brought relief to investors wary of years of geopolitical tensions.   

Foreign investors bought a net 1.8 billion yuan of shares listed in Shanghai and Shenzhen on Wednesday, while their mainland counterparts purchased the most Hong Kong stocks in more than three weeks, according to Bloomberg-compiled data. 

Their buying also came amid signs that Covid infections may be peaking in some of China’s major cities. Separately, Beijing has pledged to expand fiscal spending as part of efforts to boost economic growth.

To be sure, other observers say it remains too early to turn outright bullish on China. 

“We do need to have a little bit more clarity in the next few weeks in terms of how the Covid situation unfolds in China,” said Tai Hui,  APAC chief market strategist at JPMorgan Asset Management, in a Bloomberg TV interview. “We’ve yet to see really convinced investors coming back in from the US, from Europe.”