Chinese stocks face biggest monthly gain since 2020

Chinese stocks are on course to post their biggest monthly gain in nearly two years as investors bet the worst of the country's lockdown-induced economic shock and sweeping crackdown on the tech sector is over.

The CSI 300 index of stocks listed in Shanghai and Shenzhen rose more than 8 percent in June. That put the leading index on track for its biggest one-month rise since July 2020, when global investors bought Chinese stocks as the country ended its first round of Covid-19 lockdowns ahead of the rest of the world.

Stocks also received a boost this week after China reduced quarantine requirements for international arrivals from two to one week. This was the first significant easing of travel restrictions since authorities brought Covid outbreaks in Shanghai and Beijing under control.

"As a signal of the balance between zero Covid and economic growth, you can see that [in Beijing] there is a little more concern about the economy," said Frank Benzimra, head of Asia equity strategy at Société Générale, of the move government to relax quarantine regulations.

Benzimra said global markets were reacting to a turning point in the policies of the world's two largest economies. As policymakers in China ramped up efforts to boost growth, a 0.75 percentage point hike in interest rates by the Federal Reserve this month forced investors to grapple with the prospect of a slowing US economy.

Despite the month's gains, Goldman Sachs analysts warned on Wednesday that China's zero interest rate policy "is unlikely to change fundamentally any time soon". This was largely due to the lack of progress on vaccinating the country's vulnerable elderly population and a desire for stability during November's Chinese Communist Party Congress, where President Xi Jinping is expected to secure a third term.

As Chinese leaders look to spur growth after Shanghai's two-month tight lockdown, regulators have signaled they will relax their crackdown on the country's tech sector almost a year after launching an unprecedented crackdown.

Expectations of a softer crackdown from Beijing have helped Hong Kong's Hang Seng tech index soar nearly 10 percent this month.

Brokers said much of the demand came from mainland investors. Data from Hong Kong's Stock Connect program, which connects the city's stock market to the Shanghai and Shenzhen stock exchanges, shows nearly $6 billion in net purchases by traders in Shanghai and Shenzhen in June.

Louis Tse, managing director of Hong Kong-based brokerage firm Wealthy Securities, said Chinese tech companies had been "sold off very heavily before buying came from the North".

Hong Kong-listed shares of Chinese internet giant Alibaba were among the best performers, rising 18 percent this month after rumors surfaced that the company may be trading as part of celebrations marking the 25th anniversary of the territory's handover to the United Kingdom on July 1 could be quickly included in the Stock Connect program.

However, Tse said the program is unlikely to make an exception to the requirement that Hong Kong trading accounts for more than half of a company's annual turnover. Trading in New York still accounts for nearly 80 percent of all Alibaba stock trading.

"I'd have to see it actually happen before I tell a customer to buy," he added.