SHANGHAI, March 30 (Reuters) - Chinese stocks surged to seven-year highs on Monday, while the Hong Kong market posted its biggest daily gain in two months, as investors bet more infrastructure spending and policy stimulus would re-energise China’s cooling economy.
China’s main indexes, the CSI300 and the Shanghai Composite Index, both jumped nearly 3 percent to the highest level since March 2008, while Hong Kong’s benchmark Hang Seng index rose 1.5 percent, the biggest daily gain in two months.
Over the weekend, China unveiled details of its blueprint for a modern Silk Road to improve links from Asia to Europe and Africa, an ambitious initiative that could translate into a new wave of investment.
Analysts say “Silk Road”-related investment, which this year alone could reach 300 billion to 400 billion yuan ($48-64 billion), would benefit a wide range of companies including port operators, train makers and steel producers.
“The initiative is a boon to many of China’s struggling industries,” said Alex Kwok, Hong Kong-based strategist at China Investment Securities (HK).
Also fuelling the stock rally were dovish comments by central bank Governor Zhou Xiaochuan, Kwok said. Zhou warned on Sunday that the country needed to be vigilant for signs of deflation.
“China’s economy is under relatively big downward pressure, and the government is struggling to meet the 7 percent growth target this year. So Zhou’s comment sends a strong signal of more easing policies ahead,” Kwok said.
China’s stock market, which surged more than 50 percent last year on government easing hopes, is up another 16 percent this year, pushed up by herd investors who are snapping up newly launched mutual funds, often in days.
They have been emboldened by recent remarks from officials that showed support for the market’s rise. In the latest sign of government support, a commentary in Monday’s official People’s Daily said that a bull market would aid the country’s economic restructuring.
“We’re seeing a fresh flood of money flowing into the stock market and they’re actively looking for ideal targets,” said Jiang Kai, a Shanghai-based hedge fund manager.
“Small-caps are already too expensive. The Silk Road initiative gives those new investors a good excuse to buy into blue-chips.”
Infrastructure-related stocks jumped nearly 6 percent on average in China, and nearly 3 percent in Hong Kong, as investors bet they would benefit the most from China’s Silk Road investment.
Shares in China Communications Construction surged 15 percent in Hong Kong and a maximum 10 percent in Shanghai.
Real estate stocks surged on expectations of fresh policies to aid the struggling property market and, after the market close, the central bank said it would ease lending policies to support second home purchases.
The Hong Kong China Enterprises Index, which tracks Chinese companies listed in Hong Kong in the form of so-called “H shares”, surged 3.4 percent, its biggest daily gain this year.
Chinese regulators said on Friday mainland mutual funds would be allowed to invest in Hong Kong shares via the Shanghai-Hong Kong Stock Connect scheme.
Analysts said the move would help reduce the valuation gap between the two markets, as mainland fund managers would probably use this channel to bargain-hunt for Hong Kong-listed shares, which trade at about a 35 percent discount to their mainland peers on average.
“I expect mainland shares to keep rising, while Hong Kong stocks will likely move closer to their China peers in terms of valuation,” said Kwok of China Investment Securities (HK). (Editing by Alan Raybould)