Chinese shares soared to two-year highs in frenzied trade on Tuesday, extending a blistering rally as mainland markets reopened after a week-long break, while Hong Kong shares slid as investors walked back some of the stimulus excitement.
Mainland shares had added $600 billion in market value by mid-morning and turnover surged past a trillion yuan ($142 billion) inside 20 minutes of trading. Industrial metals leapt on bets that the recent burst of stimulus measures will steady a shaky economy while semi-conductor and construction shares rallied as expected beneficiaries of government spending.
The blue-chip CSI300 jumped 10% at the open and settled 6% higher in morning trade. The Shanghai Composite hit its highest since Dec. 2021 and was last up 5%.
Hong Kong shares, by contrast, sold off heavily with the Hang Seng down 6.8% as investors took profits and some mainland gains were not as big as some traders had hoped.
China's bull run is at an early stage, and "now is still a precious window to build long positions," BOC International (BOCI) said in a note to clients, recommending tech shares, building material stocks and consumer plays.
Fresh policy announcements could lead to a correction due to profit-taking, but "the market will likely remain upbeat and advance higher" as the risk of further economic deceleration has been contained, BOCI strategist Xu Peidong said.
The CSI all-share semiconductor index surged 16%. The construction-engineering index rose 5.1% and the consumer staples sub-index jumped 5.3% to a more-than three-year high.
Hong Kong's index of mainland property developers, however, fell 11% and if sustained would make for one of its largest percentage declines, though analysts said technical reasons were probably behind the selling.
"There may be a bit of a profit taking," said Natixis' Gary Ng. "I don't think the sentiment is that different. It's really about one market being closed for many days, and the other one has been trading."
The yuan fell sharply to 7.0502 per dollar and five-year bond futures dropped to their lowest since July before rebounding during an economic officials' press conference.
Growth goals
At a highly-anticipated press conference in Beijing economic officials said China was "fully confident" of achieving full-year economic targets and planned to issue 200 billion yuan in advance budget spending and investment projects from next year.
"Everyone's listening in ... with bated breath, hoping to get clarity on the extent of fiscal stimulus," said Rong Ren Goh, a portfolio manager in the fixed income team at Eastspring Investments.
"Whether it is closer to two or 10 trillion yuan matters," he said, with something closer to 10 needed to keep markets rising.
Before the Golden Week break, China announced the most aggressive stimulus measures since the pandemic and the CSI300 gained 25% over five sessions. Last Monday the CSI300 and the Shanghai Composite both notched their largest gains since 2008.
But gains have been so large that others now urge caution.
"China's weighting in the MSCI EM Index rose from 24% in Aug to 30% now, and its continued outperformance may drive a self-reinforcing 'pain-trade' before the year-end," Bank of America analysts said in a note on Monday.
However, they said, the "'buy everything' stage will be over soon," with market momentum, fiscal support, earnings, the U.S. election and further policy settings all part of the outlook.
"Consumer, property (and) broker stocks could be profit-taking candidates ... big cap internet and high-yield SOEs are our preferred exposure," they said.
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