China, Hong Kong stocks jump as policy relief fires up property, banking shares

Property and banking shares surged, after China's securities regulator said it would allow China- and Hong Kong-listed Chinese developers to sell additional shares, lifting a six-year-old ban. The announcement followed government measures to expedite lending and bond financing to China's struggling real estate sector.

Stocks in China and Hong Kong bounced sharply on Tuesday, as investors snapped up property and bank shares after regulators broadened equity financing channels for developers, easing fears of a debt crisis in the world's second-biggest economy. China's bluechip index CSI300 rose nearly 3% by the lunch break, while the Shanghai Composite Index gained 2.2% to a two-month high. Hong Kong's stock benchmark Hang Seng shot up nearly 4%.

Tuesday's euphoria contrasted with pessimism the previous day as the CSI300 gauge dropped as much as 2.7% and Hang Seng ended 1.6% lower amid worries about rare protests against strict COVID-19 curbs in China as infections rise. Property and banking shares surged, after China's securities regulator said it would allow China- and Hong Kong-listed Chinese developers to sell additional shares, lifting a six-year-old ban.

The announcement followed government measures to expedite lending and bond financing to China's struggling real estate sector. "Deep-pocketed, long-term, and adamant investors are entering the market," said Mark Dong, Hong Kong-based co-founder of Minority Asset Management.

With listed developers allowed to issue shares, "the market is no longer worried that some property firms would collapse." An index tracking China-listed shares jumped 8% to the highest level in six month, while Hong Kong-listed Chinese developers surged more than 9% to a two-month high.

A slew of China-listed developers, including Vanke , Jinke Property and Financial Street jumped to their daily limit of 10%. In Hong Kong, Country Garden was up 9%, and Longfor Group surged 12%. The strong market reaction shows the latest measure "is more heartening than previous policies" said Yuejin Yan, head of research at the Shanghai E-house Real Estate Research Institute.

The combination of China's "three arrows" to aid the property sector - to facilitate lending, bond sales and equity financing - "would greatly improve developers' liquidity conditions", he said. Banking shares also surged, as investors bet a healthier property market would reduce the risk of bad loans.

Financial stocks rose 3.6% in Hong Kong; they jumped nearly 6% in China, on track for their best day in two years. Hong Kong's tech stocks also climbed sharply, with an index tracking the sector up 5.5%.