China Stocks Gain as Moderating Recovery Boosts Liquidity Hopes

China stocks appear to be staging a revival, notching their best two-day run since February on expectations that Beijing will likely maintain its policy support for an economic recovery that’s losing steam.

The CSI 300 Index closed 1.5% higher, extending gains from Friday to 3.9%. The benchmark traded up to session highs following official monthly data showing that economic activity moderated in April - a development that analysts say could result in sustaining government support and tame fears over tightening liquidity.

“Investors who earlier expected that the government will tighten their fiscal and monetary policies are more optimistic now,” said Zhang Gang, a strategist for Central China Securities.

China Stocks Gain as Moderating Recovery Boosts Liquidity Hopes

All sub-gauges except the measure of financial shares gained on the index, with materials and consumer discretionary firms leading. Meanwhile, the liquidity-sensitive ChiNext Index advanced to the highest in nearly three months.

Fu Linghui, a spokesman of the National Bureau of Statistics, downplayed concern over inflation at a briefing to release April’s economic figures, saying authorities are confident that prices will be kept stable for the full year.

The comments came after the central bank in a report published last week said that higher global commodity prices have little impact on domestic consumer inflation. It also promised to keep liquidity reasonably ample.

The People’s Bank of China added 100 billion yuan ($15.5 billion) of one-year funds with its medium-term lending facility on Monday at an unchanged rate of 2.95%, matching the amount due this month. By keeping liquidity ample, the operation is seen to be supportive of the nation’s liquidity-sensitive stocks and also bonds.

The strength of consumer stocks came as China is ramping up vaccination following the detection of its first new Covid-19 case cluster in months. Almost 14 million vaccines were administered on Friday, according to figures from the National Health Commission, a record for the country that means China is closer to its target of vaccinating 40% of its population by the end of June.

In Hong Kong, education providers rallied after China posted the final version of its private education law. China Education Group Holdings Ltd. rose 5.2% while Minsheng Education Group Co. added 4.5%.

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