Chinese stocks rally as traders bet on economic rebound

Shares in mainland China and Hong Kong rallied as investors brushed aside another record rise in US coronavirus cases and focused on the recovery in the world’s second-biggest economy.

China’s CSI 300 index of Shanghai- and Shenzhen-listed shares jumped as much as 3.7 per cent in early trading on Monday, the biggest rise since February 2019 and extending recent gains after closing at a five-year high on Friday. Hong Kong’s Hang Seng index added more than 2 per cent.

Traders said China’s retail investors — a dominant force in the mainland’s equity markets — were piling into stocks in the technology and internet sectors as they bet on the country’s economic recovery gaining momentum. Data released on Friday showed that Chinese services sector activity had risen in June, with consumer spending rebounding following the coronavirus lockdown.

“Individual investors in China are really optimistic about the economic reopening,” said Dickie Wong, executive director at Kingston Securities, who added that traders were for now willing to put to one side risks linked to rising US-China tensions.

Elsewhere, Japan’s Topix and South Korea’s Kospi both added 1.3 per cent.

Futures suggested that the S&P 500 would open 0.9 per cent higher when US trading resumes later on Monday following the three-day July 4 weekend. 

The upbeat mood in equity markets came despite signs of new waves of the coronavirus in a number of countries, including the US. That could dent hopes for a strong, V-shaped recovery in the global economy fuelled by data last week that showed the US added nearly 5m jobs in June.

The US reported its highest-ever number of Covid-19 infections for a Sunday, at more than 42,500, as the country celebrated July 4. That was in addition to the more than 52,000 cases reported on Saturday.

A number of so-called Sun Belt states, such as Arizona and Florida, have been hit hard by the current wave of infections, raising fears of further economic lockdowns.

Australia’s S&P/ASX 200 slipped 0.1 per cent as a wave of infections in Victoria prompted the closure of the state’s border with neighbouring New South Wales.

But after global stock markets’ powerful rebound from their March lows, some investors have indicated they could sit on the sidelines until they see stronger evidence of a recovery in corporate earnings.

“We expect global equities to still be around current levels in 12 months,” wrote analysts at Citi. “We would not chase markets higher from current levels, but would prefer to wait for the next dip.”

Oil prices were holding at close to four-month highs but without any clear direction as investors digested the potential impact on demand of new US lockdowns.

Brent crude, the international benchmark, added 0.2 per cent to $42.89 per barrel. West Texas Intermediate, the US marker, slipped 0.7 per cent to $40.34 per barrel.

The yield on US 10-year Treasuries, viewed by investors as a haven asset, rose 0.02 percentage point to 0.689 per cent. Bond prices fall as yields rise,