Stock market Illustration: VCG

China’s A-share market staged a strong rally in the afternoon session on Wednesday, with the benchmark Shanghai Composite Index rebounded to close at more than 3,400 points, the highest in nearly two months. 

Market analysts noted that the latest trade agreement reached between senior Chinese and US economic officials in Geneva, Switzerland, has largely lifted market sentiment. The two countries reached a deal to slash their previous prohibitive tariffs by 115 percent.

And, with the continued policy support and steadily improving economic fundamentals in China, foreign investors are increasing their bets on Chinese equities and other assets, bolstering expectations for further gains in the country’s capital market.

At the close, the Shanghai Composite Index rose by 0.86 percent to close at 3,403.95, the Shenzhen Component Index gained 0.64 percent, and the ChiNext Index climbed 1.01 percent. Combined turnover at the Shanghai and Shenzhen stock exchanges exceeded 1 trillion yuan for the 15th consecutive trading session.

Meanwhile, Hong Kong stocks also closed higher, with the Hang Seng Index rising by 2.3 percent and the Hang Seng Tech Index gaining 2.13 percent.

Substantial progress in China-US economic and trade talks in Geneva has significantly boosted global investor confidence, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Wednesday.

Multiple foreign asset management firms expressed confidence that the attractiveness of Chinese equities is growing to global investors. 

For instance, Japan-based Nomura upgraded Chinese stocks to a “tactical overweight” rating from “neutral” after the China-US trade talks in Geneva, South China Morning Post reported on Tuesday.

Some hedge funds, especially US-based ones, have added bullish bets on Chinese stocks lately in anticipation of significant progress in US-China trade talks, Reuters reported, citing a note from Morgan Stanley.

Morgan Stanley said on Friday that US-based hedge funds have “re-engaged” with China, picking up both US-listed Chinese stocks and A-shares, encouraged by signs of progress toward a potential trade deal in Geneva.

Foreign inflows into both A-shares and Hong Kong stocks have increased notably this year. Compared with US equities, A-shares are trading at less than one-third of the valuation, highlighting a pronounced valuation gap, Yang said.

Also, the Chinese yuan is expected to break out of its current trading range and embark on a meaningful appreciation following the trade deal – a trend that also reflects growing international investor confidence in Chinese assets, Yang said.

At the same time, the policymakers have shown strong support for the capital market, with a steady stream of pro-market measures being rolled out in April. Against this backdrop, both A-shares and Hong Kong stocks are well-positioned to extend this year’s tech-driven rally, Yang said.

Even in the face of future uncertainties, China still has ample policy room to respond effectively. This includes more fiscal stimulus tools, backed up with stronger and more targeted measures, in order to support the steady operation of the economy, Wen Bin, chief economist at China Minsheng Bank, told the Global Times on Wednesday.

Amid a series of global uncertainties, the appeal of Chinese assets continues to rise, as China offers reliable economic development, sound macroeconomic policies, and strong institutional support – all of which bring greater certainty to the economy and capital markets in an otherwise unpredictable world, Wu Qing, chairman of China's top securities regulator, China Securities Regulatory Commission, said on May 7.

Global Times