Copy of 2022-12-30T122217Z_1436342345_RC2SEV91S3LK_RTRMADP_3_CHINA-BROKERAGE-REGULATION-1672738225128
The HSCEI measure is expected to rebound in 2023 after capping a third straight year of declines. Image Credit: REUTERS

Hong Kong: Chinese equities overcame early volatility to advance on the first day of the new year as optimism grew that Covid infections may have peaked in some parts of the nation.

The Hang Seng China Enterprises Index, which tracks Chinese firms listed in Hong Kong, was up 2.2 per cent as of 2:15 pm local time “- heading for its best first-day trading performance in any year since 2018. On the mainland, the benchmark CSI 300 Index was up 0.5 per cent.

A recovery in subway use in nearly a dozen major cities and the peaking of the Covid outbreak in the southern manufacturing hub of Guangzhou helped boost market sentiment. Investors have turned more bullish about 2023 amid bets that China’s reopening will eventually boost the economy and corporate profits.

“While it is inevitable to see further surges and more widespread in infection at the initial stage of opening, the outlook for the Chinese economy has brightened for 2023,” strategists at Saxo Capital Markets wrote in a note. “In addition to the reopening, China has intensified its effort to support the distressed property sector and given property developers access to credit and equity financing which had been denied to them for the most part of 2022.”

Bets on China’s reopening saw the Hang Seng gauge surge 36 per cent in the last two months, beating a broader Asian index by more than 20 percentage points. The HSCEI measure is expected to rebound in 2023 after capping a third straight year of declines “- a record losing run since its inception in 1994.

Still, volatility is expected to remain high. A raft of reports highlighted the economic toll from the surge in virus cases. With stocks having rallied for two months on reopening bets, traders will look for fresh catalysts, especially as analysts expect the economy to rebound only later in the year.

Official data over the weekend showed the decline in manufacturing worsened last month, while activity in the services sector plunged the most since February 2020. The number of domestic trips during the New Year’s holiday only rose 0.44 per cent from a year earlier, government figures showed.

The CSI 300 has been largely rangebound after surging almost 10 per cent in November as investors booked profits amid fears about the spike in infections following the dismantling of China’s Covid Zero policy.