China’s stock market has experienced significant growth following the release of data indicating the largest surge in travel since the COVID pandemic. The Shanghai Composite index jumped 1.6% on Monday, reflecting positive sentiment in the market. This rally was fueled by data showing that more than 61 million rail journeys were taken by citizens during the six days of the national holiday, a 61% increase compared to the previous year and the highest in the past five years.
In addition to the increase in travel, domestic tourism spending surged by 47.3% to 632.7 billion yuan ($88 billion) during the holiday period compared to the same period in 2023. This surge in activity and spending suggests that Chinese households are growing more confident, especially after a period of weak consumption and relatively stagnant GDP growth. China, as the world’s second-largest economy, has been grappling with deflationary pressures and a struggling property market.
The mainland China stock markets had been closed since February 9, and during this time, the Shanghai Composite had fallen more than 12% year-to-date. Investors were frustrated by the lack of a major fiscal boost by Beijing. However, the Hang Seng in Hong Kong, which resumed trading on February 14, rebounded by 3.8%, providing support for mainland stocks.
While the surge in tourism is seen as a glimmer of hope for policymakers, its long-term sustainability is still uncertain. The decline in China’s stock market has led MSCI to remove 66 Chinese companies from its indices. Betting on a recovery in the Chinese market is still considered swimming against the tide until conditions improve.
Emma Wall, head of investment analysis and research at Hargreaves Lansdown, takes a contrarian stance and argues that Chinese stocks are worth considering given the poor sentiment surrounding them. She believes that looking ahead over the next five to ten years, China’s stocks present an attractive entry point for investors based on valuation.
In other parts of Asia, the Hong Kong market gave back some of its recent gains, while Japan’s Nikkei 225 remained steady near record highs. In Europe, trading was muted due to the closure of the US market for Presidents’ Day. The FTSE 100 in London remained unchanged, while the CAC 40 in Paris dipped 0.3% from its record close on Friday, and Frankfurt’s DAX eased by 0.2%.
Attention will turn to Wall Street later in the week when the minutes of the latest Federal Reserve meeting are released, and AI stock Nvidia unveils its latest quarterly results. These events could impact the momentum driving US stocks higher.
In Europe, there were notable developments. Polymetal International shares fell by 6% after the gold miner announced a deal to sell its Russian mining business for $3.69 billion. The company cited Western sanctions and the threat of nationalization by the Russian government as reasons for fully exiting the Russian Federation. Meanwhile, shares of Banco Santander rose nearly 2% after the bank proposed to increase its cash dividend by 50% and launch a €1.5 billion share buyback. This news lifted the Spanish banking sector and helped the IBEX 35 index outperform with a 0.3% gain.
Overall, China’s stock market has shown promising growth following the surge in travel during the national holiday. While uncertainties remain, such as the long-term sustainability of tourism and the challenges faced by the Chinese economy, some analysts see this as an opportunity to invest in Chinese stocks based on valuation. The global market landscape remains mixed, with developments in Europe and upcoming events in the US expected to influence investor sentiment in the coming days.
