US-traded Chinese stocks maintain best week since at least March as hopes of reopening help spark rebound

Shares of U.S.-traded China stocks on Friday posted their best week since at least March, with a popular exchange-traded fund getting its biggest weekly advance since 2011, as shares recovered from last week’s punishing sell-off.

KraneShares CSI China Internet ETF KWEB,
+6.30%
it rose 6.3% on Friday, taking its weekly gain to nearly 25%, its strongest weekly performance since the week ending March 18, when it rose 28.8%, according to FactSet data. Closely-watched ETF tracks the performance of some of the largest China-based companies that have U.S.-traded US depository receipts

See: Chinese stocks including Alibaba, Nio soar as Chinese officials say they will ramp up vaccines for the elderly

Other China-focused ETFs and companies also had their best week in just as long, if not longer. Chinese stocks rallied in the second half of March as fears that US authorities could speed up the delisting of some Chinese companies whose ADRs were traded in the US eased

Meanwhile, iShares MSCI China ETF MCHI,
+2.45%,
which climbed 2.5% on Friday, eked out a 12.3% weekly gain. That performance surpassed the 12.2% gain from the week ending November 4, making it the largest weekly gain for the ETF since October 2011.

Other popular China-focused ETFs posting the biggest weekly gains since March include iShares China Large-Cap ETF FXI,
+2.85%,
Invesco Golden Dragon China ETF PGJ,
+5.20%
and the Xtrackers Harvest CSI ASHR,
+1.17%.

See: Why China’s COVID Policies Are Shaking Investors Again

US-traded Chinese stocks have also risen sharply this week, with shares in Nio Inc. NIO,
+8.60%
up 8.6% on Friday to take their gain for the week to 29.1%, nearly surpassing its gain from the week ending March 18.

Alibaba BABA Group,
+4.79%
rose 4.8% on Friday, taking the week’s gain to 19.3%, while Tencent Holdings TCEHY,
+3.69%
rose 3.7% to finish the week more than 12% higher.

Chinese stocks are still sharply down from the start of the year, reflecting the intense turmoil that has rocked Chinese markets as fears over harsh COVID-19 measures and President Xi Jinping’s increasingly hostile stance towards the West helped to sour investor appetite. Efforts by the Biden administration to block China’s access to some key technologies in the semiconductor space have helped fuel tensions.

This week’s rebound was spurred by expectations that Beijing could significantly ease its COVID-19-inspired restrictions after authorities lifted some testing requirements, but Chinese stocks also benefited from expectations that the Federal Reserve could rally interest rates by just 50 basis points in December, said Thomas Matthews, senior market economist at Capital Economics.

China-focused ETFs saw strong inflows this week of $1.2 billion, according to a note from Jefferies global equity strategist Sean Darby.

Some of the worst civil unrest in decades rocked China late last month after a deadly fire broke out in an apartment building in Urumqi, the regional capital of China’s Xinjiang region. Some citizens blamed the government’s lockdown measures for exacerbating the death toll, as barriers installed to impede movement would have hindered the response to the fire, which inspired the protest movement, as reported by MarketWatch.

However, some of the gains inspired by the reopening of Chinese equities could be short-lived, as Matthews explained.

“First, further suppression of the protests seems to us more likely than meaningful acquiescence to protesters’ demands,” Matthews said. “This could shake investor confidence. Harsh treatment of protesters would raise the threat of sanctions on China by the US and others, or at least an acceleration of ‘decoupling’ trends that have been underway for some time.”

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