Equities in China and Hong Kong made a strong recovery on Monday after last week’s sharp selloff, as traders began to reassess the outlook for potential stimulus measures and the country’s recent initiatives aimed at improving corporate valuations.
The Hang Seng China Enterprises Index surged by as much as 2.2%, following a loss of more than 6% the previous week. Financial stocks were at the forefront of this rally, with China Everbright Bank Co. leading the charge. The financial sector in Hong Kong saw its largest gain in a month, driving optimism in the market.
Shares of Chinese state-owned enterprises with a price-to-book ratio below one also saw notable gains. This followed the China Securities Regulatory Commission (CSRC) issuing new guidelines on Friday, urging companies to develop specific and actionable plans to boost their valuations.
The rally in Chinese stocks had slowed in recent weeks, hampered by concerns over persistent deflationary pressures and geopolitical uncertainties following Donald Trump’s presidential victory. Nevertheless, some investors remain optimistic, buoyed by encouraging economic data from China and speculation that additional stimulus measures are on the horizon to support the world’s second-largest economy.
“This document is part of Beijing’s broader effort to stabilize the market in the short term, while also working to close loopholes and improve market efficiency over the medium term,” said Siguo Chen, portfolio manager at RBC BlueBay Asset Management. He added, however, that the immediate effect of the CSRC’s announcement would likely be limited to improving sentiment.
The CSRC’s guidance follows similar actions by regulators in other Asian markets, such as Japan and South Korea. Japan’s initiatives to boost corporate value have helped drive its equity benchmarks to multi-decade highs, while South Korea recently launched its Value-Up Index as part of its broader push for improved corporate governance and enhanced shareholder returns.
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