China stocks rally to decade-high on easing tariff tensions, rotation of funds

The Star

2 days ago

A screen shows financial market movements at the new building of the Shanghai Stock Exchange in Shanghai on April 25, 2025. (Photo by Hector RETAMAL / AFP)
HONG KONG: China stocks jumped to their highest level since 2015 on Monday, extending a months-long rally fuelled in part by receding trade tensions with the U.S. and lifting market capitalization to an all-time peak.
A trade truce between China and the U.S., which was extended by 90 days last week, has helped to underpin sentiment, while brokers also cite a liquidity-driven uptick in stock prices due to a rotation of funds into equities from bonds.
The Shanghai Composite Index climbed 1.2% to 3,740.50 by the midday trading break, marking the highest intraday level since August 18, 2015. The CSI 300 Index climbed 1.5%, heading towards the biggest gain in over four months and earlier hit the highest level since October 2024.
The Shanghai benchmark has now risen nearly 23% since its early April low, also buoyed by enthusiasm for tech stocks and the global euphoria over advances made in artificial intelligence.
The total market capitalization of over 5,400 China-listed companies has risen above 100 trillion yuan for the first time, reflecting both price appreciation and a surge in listings.
Winnie Wu, Bank of America's chief China equity analyst, said optimism over geopolitics and Beijing's policy directions helped drive down the equity risk premium and sustain risk-on sentiment despite the still-weak fundamentals.
"There are renewed hopes on domestic retail flows," she wrote in a note to clients.
Analysts at UBS expect the liquidity-driven bull market rally to continue at least until September, saying: "Most investors see limited downside risk in the stock market for now."
Leading the rally on Monday, the rare earth sector surged 5.3% to a fresh high since December 2021. The AI sector jumped 4.8% and the information technology sector rose 2.9%.
In Hong Kong, the benchmark Hang Seng Index advanced 0.6% to 25,426.53, the highest since October 2021.
The Tech Index rallied 2%, while the EV sector soared 3.2%, with heavyweights BYD, NIO and Xpeng rising 3.2% to 8%.
Long-only funds showed renewed interest in Hong Kong and China stocks, while hedge funds also bought Chinese equities on a net basis at the fastest pace in seven weeks, Goldman Sachs said in a note. - Reuters