China stocks defy global sell-off as mood reverses

China stocks rose for a third straight week, defying a global equity sell-off triggered by fears of aggressive rate hikes, as investors start to see Beijing's dovish monetary policy supportive of battered stocks that will stand to benefit from economic re-openings from COVID, and massive stimulus. Chinese stocks also benefit from a gush a foreign inflows, reflecting a sharp reversal of mood toward a market that was shunned by global fund managers just a month ago amid concerns over tough COVID curbs, harsh tech regulations and the fallout from the Russia-Ukraine crisis.

China stocks rose for a third straight week, defying a global equity sell-off triggered by fears of aggressive rate hikes, as investors start to see Beijing's dovish monetary policy supportive of battered stocks that will stand to benefit from economic re-openings from COVID, and massive stimulus.

Chinese stocks also benefit from a gush of foreign inflows, reflecting a sharp reversal of mood toward a market that was shunned by global fund managers just a month ago amid concerns over tough COVID curbs, harsh tech regulations, and the fallout from the Russia-Ukraine crisis. China's benchmark CIS300 index rose 1.4% to a three-month closing high on Friday, capping three consecutive weeks of gains. Hong Kong's benchmark Hang Seng rose 1.1%.

Tech stocks are particularly strong in both markets. Shanghai's Nasdaq-style STAR Market has rebounded nearly 30% from an April 27 low, while the Hang Seng Tech Index has bounced roughly 34% from its mid-March trough. Only a few weeks ago, China's tech sector was labeled by some as "uninvestable", and "since then we've seen a hat-trick of good news in the form of supportive regulatory developments, the reopening of major cities from lockdowns, and a series of earnings and guidance beats," said Adam Montanaro, investment director at Aberdeen.

"For long-term active investors these are exciting times to be greedy whilst others remain fearful." In contrast, world stocks are headed for their worst week since the markets' pandemic meltdown in March 2020 as leading central banks doubled down on tighter policy to tame inflation, stirring growth concerns.

"The U.S. economy is slowing, and the Fed is tightening, but China's economic policy is more friendly to equities," said Huang Yanming, head of research at Guotai Junan Securities. Alexander Treves, head of the investment specialist, Asia equities at J.P. Morgan Asset Management said: "After a period of regulatory tightening... we now see signs that a policy shift is underway to alter the emphasis away from deleveraging and de-risking, and towards economic stabilization and capital market development."

This week, foreign investors bought 17.4 billion yuan worth of China stocks, expanding purchases so far this month to 58.67 billion yuan, reversing outflows in the early months of the year. "We do not expect a V-shaped recovery but probably... W-shaped recovery so our China equity investment team members are gradually turning from defensive mode to more bold mode," said Jessica Tea, senior investment specialist, Greater China equities at BNP Paribas Asset Management.