Chinese Stocks Increase on Stimulus, Shanghai Reopening; Covid Uncertain
After a day of choppy trading, Chinese stocks ended the day higher. Investors were worried about Beijing's zero-COVID policy and a possible rise in cases, which tempered their initial excitement about more stimulus measures to help a struggling economy.
The CSI300 index of big companies went up 0.2% to 4,089.57 points, and the Shanghai Composite Index went up 0.4% to 3,195.46 points. The Hang Seng index went down 1% to 21,082.13 points, and the China Enterprises index went down 1% to 7,267.57 points.
On Wednesday, China's cabinet said it would give policy banks an extra 800 billion yuan ($120 billion) in credit so they could help build infrastructure. “With frequent measures to help the economy, A-shares had their biggest comeback since the correction in May,” said Chen Mengjie, chief strategist at Yuekai Securities, after the Shanghai Composite Index rose 4.6% in May, the most in a year.
“The market might stay in a narrow range in June, but we're not worried because the worst is over.” On Tuesday, China's cabinet announced a set of 33 measures to help the country's economy recover from the pandemic. These measures cover fiscal, financial, investment, and industrial policies.
Shanghai came back to life after most restrictions on COVID were lifted, but worries about a rise in cases and the zero-COVID policy remained. Nomura said in a note, “Because COVID-related uncertainty is still high, we see big downside risks to our current annual GDP growth forecast of 3.9% for 2022.”
China wants to get about a third of its power from renewable sources by 2025, up from 28.8 percent in 2020, according to a new “five-year plan” for the renewable sector released by the state planning agency on Wednesday.
Shares of new energy went up 2.4%, shares of semiconductors went up 4.1%, shares of real estate developers went down 1.6%, and shares of energy went down 2.4%.
China's electric vehicle startups said that sales were better in May and that they expect sales to keep going up in June as supply chains and production start to get back on track after the COVID-19 lockdowns.
From a geopolitical point of view, China is “firmly” against the launch of the U.S.-Taiwan Initiative on 21st Century Trade, the commerce ministry said on Thursday. The ministry also said that the Chinese government was against Taiwan having any kind of official contact with other countries.
Tech giants that are traded in Hong Kong went down by 0.8%, with e-commerce giant Alibaba going down by 2.4%. Chinese traders in Hong Kong lost 2.3% of their money. (Shanghai Newsroom wrote the story; Uttaresh. V and Mark Potter edited it)
Shanghai's Stock Market Has Risen as a Result of China's Promise of Stimulus.
While U.S. markets were closed for the Memorial Day holiday, stocks all over the world went up on Monday, continuing a rally that has helped make up for some of this year's losses. The Stoxx Europe 600 went up by 0.6%. Shares of tech and luxury goods companies led the way. The DAX in Germany went up by 0.8% and the FTSE 100 in London went up by 0.2%.
The news that China was about to loosen some restrictions on Covid-19 was good for the markets around the world. Shanghai's Vice Mayor Wu Qing said over the weekend that the rules for companies to get back to work will be loosened this week.
The city's government also released a 50-point plan to speed up the economic recovery. The official Xinhua News Agency said that the measures include cutting taxes for businesses and giving money to people who buy electric cars.
By noon ET, the futures for the S&P 500 had gone up by 0.6%. The U.S. stock market and the Treasury market are both set to start up again on Tuesday. In the days leading up to Friday's close, the yields on government bonds went down from their highs for 2022.
This helped the stock market recover after a rough week. The S&P 500 ended a losing streak of seven weeks on Friday and had its best week since November. Still, some money managers warn that the rise in stock and bond prices may just be a temporary blip in a longer-term drop.
They say that most of the things that have caused losses this year, like the war in Ukraine, higher interest rates set by the Federal Reserve, and a slowing economy, are still in place. Daniel Egger, chief investment officer at St. Gotthard Fund Management, said, “We are about to see a bear-market rally, or are in the middle of one.”
Mr. Egger said that yields will start to go up again and that predictions for corporate earnings are too high. He also said that high commodity prices are putting pressure on profit margins. He said, “This isn't good news for stocks.”
On the economic front, data showed that inflation was getting worse in most of Europe. Preliminary numbers show that Germany's annual inflation rate hit 8.7% this month. This is the fastest rate since 1973. In Spain, prices went up 8.5% over the course of a year, which is more than the 8.3% rise seen in April.
Shares of European companies that sell high-end goods to China and have benefited from Chinese demand went up when it looked like lockdowns might be less strict. Hermès International went up by 3.9%, while Compagnie Financière Richemont went up by 2.9%. The French company L'Oréal, which makes beauty products, went up 2.1%, and LVMH Mot Hennessy Louis Vuitton went up 2.6%.
On the commodity markets, the price of Brent crude futures rose by 1.2% to $116.90 per barrel, which was the highest price in more than two months. After diplomats failed to agree over the weekend on sanctions that would limit oil imports from Russia, EU leaders will meet on Monday and Tuesday.
In Asia, the Shanghai Composite Index went up 0.6% and the Hang Seng in Hong Kong went up 2.1%. In China, some of the biggest gains were made by companies that serve Chinese customers. In Hong Kong, shares of Haidilao International Holding Ltd., a chain of hot-pot restaurants, China Resources Beer (Holdings) Co., a brewery, and Li Ning Co. Ltd., a sportswear company, all went up by between 8.2% and 11%.
The Hang Seng Tech Index went up 3.9 percent, which is more than what it went up by late last week. Meituan, a big company that delivers food, went up by 6.8 percent. The Chinese e-commerce platform Pinduoduo Inc., whose stock is traded in the U.S., reported quarterly profits and sales that were better than expected on Friday. This came after Alibaba Group Holding Ltd. and Baidu Inc. also reported strong results.
Michael Metcalfe, head of macro strategy at State Street Global Markets, said that investors are hopeful that China is past the worst of its Covid-19 wave in terms of the severity and number of lockdowns. He said that would make one of the things that are pushing the world economy toward low growth and high inflation weaker.
Still, Mr. Metcalfe said that inflation is still high in both Europe and the U.S., which keeps central banks under pressure to raise interest rates. “There's nothing about the way inflation is going now that makes us feel good,” he said.