China’s stock market plays catch-up after data shows biggest travel surge since COVID - MarketWatchMarketWatch Site Logo

China's stock market plays catch-up after data shows biggest travel surge since COVID - MarketWatchMarketWatch Site Logo

China's stock market returned from the week-long Lunar New Year break in chipper mood, playing catch-up with a rally in Hong Kong, and with sentiment boosted by some better economic news.

The Shanghai Composite index CN:SHCOMP jumped 1.6% on Monday after data showed that more than 61 million rail journeys were taken by citizens during the six days of the national holiday, a 61% bounce on the year before and the most in the past five years, according to Bloomberg.

Domestic tourism spending surged 47.3% to 632.7 billion yuan ($88 billion) from the same holiday period in 2023, according to the Ministry of Culture and Tourism.

The increase in holiday activity and spending suggested China's households are starting to feel more confident after a period of weak consumption and relatively anemic GDP growth as the world's second biggest economy struggles with deflationary pressures and a struggling property market.

Indeed, data released Sunday by the State Administration of Foreign Exchange showed foreign businesses' direct investment into China, as measured by liabilities in the country's balance of payments, came to $33 billion in 2023, the lowest since the early 1990's, according to Bloomberg calculations.

Mainland China stock markets had been closed since Feb. 9, with the Shanghai Composite having fallen more than 12% in the year to date after hitting a four-year low earlier in February, when investors became frustrated at the lack of a big fiscal boost by Beijing.

However, during the Shanghai Composite's hiatus, the Hang Seng in Hong Kong HK:HSI, which returned from holiday on Feb. 14, rebounded 3.8% and this supported mainland stocks at the start of this week.

Stephen Innes, managing partner at SPI Asset management, said the latest China data will provide "a source of relief for policymakers grappling with challenges such as slowing economic growth, deflation risks, subdued consumer demand, and a collapse in the property sector."

"However, while the surge in tourism provides a glimmer of hope, its long-term sustainability remains uncertain," Innes added.

And Ipek Ozkardeskaya, senior analyst at Swissquote Bank, noted that such is China's stock market decline that it caused MSCI to remove 66 Chinese companies from its MSCI China and MSCI world index in its latest quarterly review. "Therefore, betting on Chinese market recovery is still swimming against the tide, until the winds turn," she said.

Emma Wall, head of investment analysis and research at Hargreaves Lansdown, took a more contrarian stance, arguing China's stocks are worth considering given sentiment had become so poor.

"While there are question marks over some sectors such as property, looking ahead over the next five to 10 years, on a valuation basis this presents an attractive entry point for investing in China," Wall said.

Elsewhere in Asia, the Hong Kong gave back some of its recent gains as the region inherited Friday's soft session on Wall Street, with the Hang Seng slipping 1.1% and Japan's Nikkei 225 JP:NIK barely changed to close just shy of record highs.

Activity in Europe was muted early on Monday as the U.S. market's closure for Presidents' Day discouraged traders from making bets. The FTSE 100 UK:UKX in London was barely changed, while the CAC 40 FR:PX1 in Paris dipped 0.3% from Friday's record close, and Frankfurt's DAX DX:DAX eased 0.2%.

"The FTSE 100 made a sluggish start to trading on Monday, lacking some direction amid the absence of big corporate or economic releases," said AJ Bell investment director Russ Mould.

But Mould added that attention will turn to Wall Street as the week progresses "when [on Wednesday] the minutes of the latest Federal Reserve meeting are released and the AI stock Nvidia NVDA, +4.00% unveils its latest quarterly results."

Read: Nvidia's earnings report could kill the momentum driving U.S. stocks higher, regardless of how it turns out.

There was some action taking place in Europe, though. Polymetal International shares fell 6% in Moscow after the gold miner said it had struck a deal to sell the entirety of its Russian mining business for $3.69 billion.

Polymetal said it is looking to fully exit the Russian Federation due to the combined threats of Western sanctions and nationalization by Putin's government. In August 2023, the company abandoned its London listing and re-domiciled from Jersey to Kazakhstan's capital Astana, with a view to avoiding Russia imposed rules that designated Jersey an "unfriendly jurisdiction" in response to Western sanctions.

Meanwhile, in Spain, shares of Banco Santander SAN, +0.69% rose nearly 2% after the bank said it proposed to boost its cash dividend by 50% to 9.50 euro cents and would launch a €1.5 billion share buyback.

The Santander news lifted the Spanish banking sector and helped the IBEX 35 index XX:IBEX outperform with a 0.3% gain.

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Jamie Chisholm is a markets reporter based in London.

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