Chinese tech board reports largest single-day increase in six years amid COVID shadow

China's benchmark Shanghai stock index made an impressive comeback to crawl back above 2,900 points on Wednesday, while the tech-heavy ChiNext board in Shenzhen recorded its biggest single-day rally in nearly six years.

The stellar reversal in the domestic equity market underscored a gradual turnabout as the COVID-hit financial hub of Shanghai has moved resolutely to contain the local virus spread. What is more uplifting is the central government's call for stepped-up investment in infrastructure, as the world's second-largest economy is striving to emerge from a slowdown amid multiple headwinds.

The rebound, which came after a sharp nosedive on Monday, reflects recent volatility in market sentiment, though analysts said that optimistic expectations are already starting to form about China's success in putting the virus under control and curbing its influence in the long term, and the fall will likely bottom out soon.

On Wednesday, the benchmark Shanghai Composite Index surged by 2.49 percent to 2,958.28 points, while the Shenzhen Component Index edged up by 4.37 percent to 10,652.9 points.

The tech-laden ChiNext board, sometimes dubbed China's version of the NASDAQ, surged by 5.52 percent, the biggest single-day increase since March 17, 2016.

The two markets rebounded from a sharp plunge on Monday, when the Shanghai market shed 5.13 percent, while the Shenzhen market fell 6.08 percent. The two markets also fell on Tuesday, though to a lesser extent.

Wednesday's broad-based rally may not sufficiently prove that mainland shares have bottomed out, although a bottom seems not far away, Raymond Deng, investment strategist CIO of consumer investment and insurance products at DBS Bank, told the Global Times on Wednesday.

As of Wednesday, the Shanghai market recorded a price-earnings (P/E) ratio of 11.7, while its forward P/E, referring to current price versus valuations over the next 12 months, stood at 9.6. This apparently points to listed firms' earning growth at large, Deng said, retaining optimism on the investment-worthiness of mainland shares over the longer term.

Current daily turnover in the A-share market is at similar levels to when the flagship Shanghai index was around 3,500 points, meaning funds and institutional investors might have been revising their portfolios, instead of withdrawing from the market, he said.

Anticipations formed

The stock markets' rebound, coming after China's coronavirus-fighting work showed some positive signs, reflects investors' positive anticipation about China's economic stabilization when it succeeds in tackling the latest outbreaks, though confidence is still not very solid as the country continues its grim battle with Omicron outbreaks in Shanghai and other regions, experts said.

On Tuesday, Shanghai reported 11,956 new asymptomatic patients, a reduction from the 15,319 cases recorded the previous day.

The phenomenon is also a forceful refutation on certain overseas' media claim that China's economy is mired in severe problems and is losing the support of global investors, as data showed the two markets had net capital inflows of more than 4.3 billion yuan on Wednesday and 1.54 billion yuan on Tuesday via northbound trading legs.

According to a report published by Bloomberg on Tuesday, China is "running out of ways" to stem market meltdown.

The report said that unlike 2020 when China could rely on global liquidity to shore up investor confidence, this time international capital is withdrawing from Chinese assets, while inflows into mainland markets remain muted.

Tian Yun, a veteran macroeconomic commentator, said that when the Shanghai coronavirus wave first broke out weeks ago, overseas investors withdrew capital to evade risks. But now investors' anticipations have been formed that China will soon succeed in putting the virus under control.

"The recent Omicron outbreak is not an endless blackhole, many people have realized that. And China's role as one of the most ideal destinations for a global safe haven has been not shaken," Tian told the Global Times on Wednesday.

He noted that compared with the first quarter of 2020, when all of three China's major economic engines - consumption, trade and investment - were bogged down in weakness, China's industrial production and exports still presented relatively strong growth in the first quarter, which reflects that China's economic fundamentals are not being hurt in a larger context.

"The biggest impact from this round of Omicron outbreaks is mostly on the consumption sector, and as soon as the COVID cases are put under control, we can expect a fast and forceful economic rebound, just as we saw in [Central China's] Hubei Province after its [2020] COVID crisis," he noted.

Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times that the recent stock market slump is triggered by market worries about further sliding of China's second-quarter GDP growth, but when the virus is under control, the pressure weighing on A-share markets will disappear and the market could see a large-scale rebound.

Infrastructure lift

Another major stimulus behind the domestic capital markets' rebound is the central government's emphasis on strengthening infrastructure investment during a high-level meeting on Tuesday, which experts interpreted as sending a clear signal to the market that infrastructure will be used as the most important driver for stabilizing growth.

"It's becoming increasingly clear that investment leads this year's economic growth, and infrastructure leads investment," Wu Chaoming, deputy head of the Chasing Research Institute, told the Global Times on Wednesday.

He anticipated that with capital and projects being arranged, infrastructure investment is likely to surge by about 10 percent in the second quarter and 8 percent for the whole year.

Domestic media outlet thepaper.cn cited an analyst from Golden Credit Rating as predicting that infrastructure investment growth might surge to 9 percent in the second quarter and driving up GDP growth by about 0.9 percentage points.

China had called for an "all-out" campaign to build infrastructure during the top meeting held on Tuesday, which marks the latest attempt by leaders to boost growth in the COVID-battered economy.

New types of infrastructure including super computing, cloud computing, artificial intelligence platforms and broadband will be included in the government's push, according to the meeting.

Tian said that China's infrastructure progress has been restrained by factors like surging raw material prices and earlier COVID outbreaks in South China, but as those factors gradually ease, it is time for the construction to speed up.

"The central government is giving a direction to local governments that they can quicken the pace of infrastructure projects now, particularly in areas that are not affected by COVID outbreaks," he said.

Deng also noted that the official call for ramped-up investment in infrastructure would be a main engine of growth amid market sluggishness. DBS Bank put China's annual growth at 5.3 percent for the whole of 2022. Earlier, China has set a target of achieving about 5.5 percent GDP growth for 2022 during the two sessions.

"Infrastructure investment isn't only about machinery, construction materials and timber that are essential to building projects, but about job creation and vast commercial opportunities in fields such as catering, clothing, housing, transportation, and healthcare," he said, betting on infrastructure-enabled growth to underpin the overall market.

During the central government meeting, officials moved to explain some of the most raised questions about infrastructure investment, including where the money comes from.

According to Wu, by elaborating on capital raising channels including pushing cooperation between government and private capital, the government is sending a signal that it will not go loose on controlling hidden debts, thus responding to some overseas media's worries about investment causing mounting debts in China.

China's engineering machinery shares surged 3.63 percent on Wednesday, while steel shares shoot up by 3.85 percent.