(Bloomberg) -- Chinese stocks rallied to their highest in more than two months, extending a recent outperformance over global peers, as the country’s growth-focused policy lures investors seeking a reprieve from aggressive monetary tightening in the US and elsewhere.
The benchmark CSI 300 Index jumped as much as 1.5% on Wednesday, taking its gains in June to more than 4% amid a global sea of red. The S&P 500 Index plunged into a bear market as did a key MSCI Inc. index of world equities, with traders anticipating a 75-basis-points rate hike by the Federal Reserve later today.
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Bets that China’s policy support will help revive the Covid-hit economy got a boost Wednesday from better-than-expected May data on industrial output and retail sales. Having been hammered during weeks-long lockdowns in key cities, Chinese equities have shown extraordinary resilience during the latest global selloff, helped also by Beijing’s dialing back of a crackdown on the key technology sector.
“We are seeing some improvements in May which are certainly positive to market sentiments,” said Redmond Wong, market strategist at Saxo Capital Markets. “The key is now whether the Covid situation can remain contained and if there’s a resumption of more stringent pandemic control measures.”
Chinese stocks were the best performers in Asia early Wednesday. The gains came even as the People’s Bank of China kept a key policy rate unchanged. The rate on the central bank’s one-year medium-term lending facility was left at 2.85%. A small number of polled analysts had expected a reduction of either five or 10 basis points.
China’s consumer prices rose a mere 2.1% in May from a year earlier, a fraction of the pace in the US at 8.6%. That’s seen as giving Chinese authorities the room to further loosen monetary and fiscal policy settings as necessary.
“Not cutting rates for now is a reasonable move given that China is not in a rush to do it,” as recent economic figures were not very bad, said Castor Pang, head of research at Core Pacific-Yamaichi International. “Investors are waiting for a slew of measures to keep pushing up the market, from property to auto market incentives, rather than just a single cut.”
As China stocks continue their climb out of a mid-March trough, the list of strategists and money managers turning bullish, or reiterating optimism on the market, has only been growing.
A key factor still weighing on stocks is Beijing’s adherence to Covid Zero. Small scale movement controls are frequent even as a blanket lockdown across Shanghai has been lifted, and the specter of restrictions returning with just a handful of infection cases may put a cap on the rally.
READ: Beijing Virus Cases Remain Elevated in Threat to Covid Zero (1)
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