Chinese Equities Rebounded on Foreign Inflow as Investors Bet on Policy and COVID Curbs Shift

Chinese equities bounced back in the afternoon trading as foreign investors accelerated purchase and on speculation that policy makers will step in to support the economy.

Foreign investors were net buyers of 9.1 billion yuan marking the most this month. That’s versus a tally of less than 2 billion yuan at the mid-day break.

The offshore Chinese currency strengthened as much as 0.22% versus the U.S. dollar on Tuesday, the most in a week.

Benchmark index CSI 300 advanced as much as 2% underscoring its biggest gain in two weeks while Hong Kong’s Heng Seng Index closed as much as 1.5%.

Investors are betting that Chinese authors will step up with measures to support the economy. Investor confidence have also intensified after Premier Li Keqiang issued third warning on economic growth in less than a week.

Chinese stocks have been under intense pressure recently, as the nation’s worsening Covid outbreak and regulatory uncertainties made the market lose momentum after a brief mid-March rally.

Given the premier’s warnings about waning growth, the uptick in the afternoon could be partly due to investors betting on a policy rate cut as per precedent play books, said Justin Tang, head of Asian research at Mariana Ufp LLP, as reported by Bloomberg. “The sentiment is that a rate cut is a matter of time.”
Traders cite a relaxation of lockdown rules as the key for the market to regain momentum. While Shanghai has partly eased its lockdown, the vast majority of the city’s 25 million residents are still subject to tight movement restrictions.

“Judging from the trend of the rebound and the performance of some individual stocks, we see some support from funds protecting the broader market and it’s possible that RRR cuts or interest rate cuts will be introduced soon,” said Meng Shen, Director at boutique investment bank Chanson & Co as reported by Bloomberg.