Chinese stocks rebounded sharply as optimism that the US Federal Reserve will halt interest rate hikes in June helped reignite investors’ desire for riskier investments.
The Hang Seng China Enterprises index rose by as much as 4.61 percent in one day (at 08:30 CET), the most in three months, led by real estate and technology companies. The Hang Seng Tech index, which includes mainly companies that usually benefit from lower US rates, added as much as 4.9 percent.
The rise comes after several weeks of sell-off that sent the HSCEI marker down on disappointing economic data and rising Sino-US tensions. While most concerns about China remained, sentiment turned up as Fed officials signaled they plan to keep interest rates steady in June.
Stephen Leung, chief executive of UOB Kay Hian Hong Kong, said the Fed’s potential pause in rate hikes at its June meeting helped boost sentiment for tech stocks in Hong Kong today and eased pressure from yuan depreciation.
Target Reduction
Investors are now waiting to see if the gains remain sustainable throughout the week’s last trading day. The latest data on manufacturing and services showed China’s economy is shaky ground, while the yuan’s weakness accelerated capital outflows.
Strategists at Goldman Sachs Group cut their target for the MSCI China Index from 80 to 70 as they cut earnings estimates and saw a stronger outlook for the dollar against the yuan. But they recommended an overweight position, stating that they had factored in investor concerns.
Foreign investors added about eight billion yuan ($1.1 billion) to stocks in mainland China (excluding Hong Kong), on track for the biggest net inflows since February.
Investors are looking to new inflation and credit data releases to gauge the economy’s health in the coming weeks.
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