Chinese stocks rose the most since 2015, heading for a bull market

(Bloomberg) — Chinese stocks extended one of their most significant swings in history, rising for a ninth straight day as government stimulus prompted investors back into one of the world's most beaten-down markets.

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The CSI 300 index jumped as much as 7.7% on Monday, the most since 2015, as traders rushed to buy stocks in the last session before a weeklong holiday. The index, which lost more than 45% of its value from its 2021 high through mid-September, has since rallied more than 20% — heading into a technical bull market. Its rally last week was the biggest since 2008.

The increased gains came after China's three biggest cities eased rules for homebuyers, while the central bank also cut mortgage rates. The latest moves were among key elements of a comprehensive stimulus package unveiled on Tuesday that included interest rate cuts, freeing up cash for banks, as well as liquidity support for stocks.

After facing several false dawns in recent years, investors can bet that the current momentum can be sustained. In a sign of the continuing frenzy, combined trading in both Shanghai and Shenzhen shares exceeded 1.6 trillion yuan ($228 billion) in the morning session, surpassing the total value of shares that changed hands on Friday.

“The momentum of the reversal clearly reflects how oversold the market was,” said Charu Chanana, global market strategist at Saxo Markets. “There is a clear belief that this time is different in terms of the authority's support for the market.”

Demand for Chinese stocks was so strong on Monday that several local brokerages experienced delays in processing orders on their trading applications, local media reported, while some securities firms also saw a surge in requests to open new trading accounts.

The latest hiccup comes after a burst of trading due to glitches that engulfed the Shanghai stock exchange on Friday.

“Everybody was such a bear and now they're all scrambling,” said Andy Maynard, head of equities at China Renaissance Securities HK Ltd. “Last week was the busiest time for China and Hong Kong that I have seen in a long time. “

Brokerages led the rally, with Citi Securities Co. hitting the 10% daily upside limit, given the perception that they are the most direct beneficiaries of rising stock trading. Almost all the component stocks of CSI 300 were in green color. A Bloomberg Intelligence gauge of Chinese property developers jumped as much as 14%.

Renewed optimism about the world's second-largest stock market is also spreading globally, with hedge funds selling US technology stocks and piling into mining and materials companies. Meanwhile, iron ore rose nearly 11% as investors bet that China's efforts to ease property woes will boost demand from the world's top consumer of the steelmaking material.

The country's 10-year sovereign bonds fell on Monday, extending their biggest weekly drop in a decade, as investors flocked to riskier assets on expectations that a massive stimulus blitz would revive economic growth.

The Shanghai Composite Index's fear and greed index, which measures buying and selling momentum for a stock benchmark popular among Chinese retail investors, rose to its highest since 2020 on Monday.

“I think the euphoria we saw in the Chinese market last week could turn into something more concrete and sustainable as there appears to be a complete policy shift that can finally address the cyclical headwinds of the past 3 years,” David Chao said. Strategist at Invesco Asset Management. “While there may still be debate about how these policy changes are implemented and whether enough has been done, I think a new direction has been indicated.”

–With assistance from Winnie Hu and John Cheng.

(updated with charts, price changes and new quotes)

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