Chinese traders gripped by frenzied reopening talks as stocks soar

(Bloomberg) — Trading desks across China have been awash with unconfirmed talk of Xi Jinping’s change to Covid Zero policy, sparking an epic rally in stocks and underscoring how desperate investors have become for signs that the country’s $6 trillion market crash is ending .

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Multiple screenshots purporting to show the world’s second-largest economy moving closer to reopening have been circulating on Twitter, WeChat and other social media platforms since late Monday.

Although neither has been confirmed – and all outward signs from Chinese authorities are that the Covid Zero policy remains intact – investors shot the Hang Seng China Enterprises Index to an 8.4% two-day gain in Hong Kong, paring a fall from February 2021 to 56%. Trading volumes jumped and the Chinese yuan rallied from a 15-year low against the dollar.

“These are all rumors and there is no way to prove the rumors true or false in the short term,” said Du Kejun, a partner at Beijing Gelei Asset Management Center Limited Partnership. “At the end of the day, people are just eager to buy the sale.”

Even by the standards of a market notorious for rumor-fueled volatility, this week’s frantic moves stand out — especially amid ongoing lockdowns and virus outbreaks in China.

Read: China Blocks Zone Around Foxconn’s ‘iPhone City’ Plant (1)

Market gains were fueled by hopes that Xi would back down on Covid Zero to save the ailing economy after consolidating his power at the party congress last month. But China’s most powerful leader since Mao Zedong has given no public indication of change, and experts have warned that the country has made too little progress in vaccination to reopen without a spike in deaths.

For investors worried about missing out on a rally when it finally comes, the stakes are potentially huge. When Chinese stocks rebounded from their lowest levels since the 2008 global financial crisis, most of the gains happened within a few months, followed by years of volatile trading.

“It just shows that there is a lot of pent-up demand for Chinese stocks, which have been beaten to death in the last six months,” said Manish Bhargava, fund manager at Straits Investment Holdings in Singapore. The market “could stage a massive rally if Beijing announces a gradual reopening,” he said.

China’s Hang Seng index rose as much as 3.2 percent on Wednesday before trading in Hong Kong was halted due to the approaching tropical storm. Reopening stocks, including shares of vaccine makers, airlines and casinos, led the advance, as CanSino Biologics Inc . rose 63% in Hong Kong.

Wild swings

The market frenzy was first sparked by social media posts that a committee was being formed to assess ways to get out of Covid Zero. Another unconfirmed document circulated on Wednesday to show that China is expected to hold a meeting on Friday to announce a raft of changes, including an easing of mandatory quarantines.

“It seems to me that people are kind of choosing to believe what’s out there,” said Hao Hong, a partner at Grow Investment Group, who spread some of the speculation on Twitter. “The market was so oversold. People have to cover their underpants and those without positions would be afraid to miss the rally. And that’s why people participate.”

Beijing’s tight Covid restrictions are the biggest worry for investors, making the market sensitive to the slightest sign of policy change. Covid restrictions and lockdowns have made Chinese stock indexes some of the world’s worst performers this year.

Even with rising market speculation, China has shown little sign of easing its Covid restrictions. On Wednesday afternoon, authorities locked down an area where Foxconn’s iPhone aircraft is located. On Tuesday, Chinese Foreign Ministry spokesman Zhao Lijian said he was “not aware” of a committee to assess scenarios for exiting Covid Zero.

“People may have misunderstood when they saw the headline that it was a full opening, but we think it is unlikely that China will completely abandon Zero Covid,” said Zerlina Zeng, senior credit analyst at CreditSights. “It is politically sensitive to remove this because during the party convention the rhetoric around Zero Covid was so strong.”

–With help from Ishika Mookerjee, Charlotte Yang, Wenjin Lv, Lorretta Chen and Yuling Yang.

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