China’s Small-Cap Stocks Rise to Two-Month High on Stimulus Bets

(Bloomberg) -- China’s small-cap ChiNext Index rose to a two-month high as investors bet authorities may add more liquidity to the financial system.

The ChiNext Index advanced 2.8% at the close in Shenzhen after Monday’s 0.5% gain. Battery maker Contemporary Amperex Technology Co. climbed 5.6% as the biggest boost to the measure. Beijing Kunlun Tech Co. was among Chinese video game stocks to jump on bets a new cloud service from Google will be a turning point for the industry.

The ChiNext gauge surged earlier in the year but is still below the 2019 high hit in April. The tech-heavy index is especially sensitive to liquidity conditions in China, and in recent months the market has expected authorities to refrain from injecting too much stimulus given rising inflation.

That changed Monday, when the People’s Bank of China cut the interest rate on its seven-day reverse repurchase agreements for the first time since October 2015 as the economy slows.

“Having had a day to digest that news, investors seem to believe that the rate cut is indeed a sign of better liquidity on the way, lifting more sentiment-driven stocks in Shenzhen,“ said Bill Chen, CIO at Shenzhen Valley Asset Management Co.

The Shenzhen Composite Index added 1.8%, the most since Sept. 9.

To contact Bloomberg News staff for this story: April Ma in Beijing at ama112@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann, David Watkins

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With assistance from Bloomberg