Hong Kong stocks off to best start since 2018 on China recovery hopes

Shoppers walk through a street market in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images

Hong Kong stocks gained the most in the first trading session of the new year.

It was the biggest first-day gain since January of last year when the index rose 2%.

China is reopening despite a nationwide surge in Covid infections.

The outlook for the Chinese economy has improved for the next five years, according to a note by Redmond Wong, Saxo Capital Markets greater China market strategist.

"China has intensified its efforts to support the distressed property sector and given property developers access to credits and equity financing which had been denied to them for the most part of 2022," Wong wrote.

The Hang Seng index rose more than 3% on Wednesday. According to Refinitiv data, the index reached 20,600, the highest level since July 29th.

Country Garden, Longfor Group, and Cifi were all listed in the city and their stock prices went up.

Reports said that Chinese officials were planning to provide more policy support for ailing developers.

After Chinese regulators approved the plan to more than double its registered capital, shares ofAlibaba rose 8%.

Chinese video and gaming app Bilibili gained nearly 9%, while electric vehicle maker Baidu rose more than 8%.

There will be more fiscal policy support in China, according to the Chinese finance minister.

Shoppers purchase festive sweets ahead of Lunar New Year at a street stall in Hong Kong, China, on Sunday, Jan. 30, 2022. Photographer: Chan Long Hei/Bloomberg via Getty Images

The minister said that the government will work on expanding and improving the effectiveness of the proactive fiscal policy.

The performance of Hong Kong stocks will have an effect on the global market.

According to analysts at the firm, the Hang Seng Index may lead other major global stock indices in the coming years.

They said in the note that they expect the HSI to recover to its previous level before Jun. 2022.

China's reopening is a positive sign for Asian stocks and global economic growth, but it also carries inflationary risks due to China's role in driving demand for the global commodities market, according to analysts at Raymond James.

Weaker growth in the Chinese economy will likely increase the chances of a more dovish Federal Reserve.

According to the note, volatility seems certain with equities finishing either modestly higher or modestly lower depending on the rate path.