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Hopes of Chinese economic recovery lift Asian stocks

Blue-chip CSI300 index soars more than 5% to highest level in over five years

TOKYO/HONG KONG -- A surge in shares in China and Hong Kong propelled a broader Asian market advance on Monday as investors grew more optimistic about quick economic recovery and Chinese state media supported a rally that has pushed the mainland's blue-chip stock index to a five-year high.

China's CSI300 index of the largest Shanghai and Shenzhen listed shares surged 5.7% on Monday, the biggest rise since February 2019. The index rose to its highest level since June 2015 on Friday and has climbed 12% this year, the biggest rise among major global stock indexes. Hong Kong's Hang Seng index gained 4.2% and has climbed 16% from its March 23 lows.

The Shanghai Composite soared over 5% to its highest level since February 2018. Investor sentiment has continued to improve following better than expected macro data from China last week.

The Caixin/Markit services purchasing managers' index on Friday showed the nation's services sector grew at its fastest pace in more than a decade in June as the economy sputtered back into action after the coronavirus induced lockdown. Hopes of an impending economic recovery buoyed financials and brokerages.

Some investors believe that China has been doing a good job at suppressing the outbreak of new coronavirus cases, raising hope for a faster recovery in its economy.

Investors were also emboldened by a front page editorial in the state-run China Securities Journal on Monday that said nurturing a "healthy" bull market was now important for the economy. It also spoke about the impacts of the "wealth effect of capital markets" and the need for a mature financial market in the current environment.

"Comments such as these from state media usually boost the confidence of retail investors and today was no different," said Kenny Wen, a wealth management strategist at Everbright Sun Hung Kai. "Besides, volumes have surged over the past few days in a sign of investor bullishness. The economic data has been broadly supportive of the economic recovery and there is expectation of further policy support to reduce the interest rate burden of corporates."

Volumes have surged in the past week with turnover in the mainland exceeding 1 trillion yuan ($141 billion) for a third day on Monday.

"Chinese equity markets are bounding higher on ebullient animal spirits," said Thomas Gatley, an analyst at research firm Gavekal. "Fundamentals like earnings don't matter while policy support is abundant. But if the economy continues to stabilize, the People's Bank of China will go on shifting back to its favored "selective easing" mode. This means fewer, more targeted rate cuts, and implies a more mixed second half for stocks."

Shoji Hirakawa, chief global strategist at Tokai Tokyo Research, said investors were also starting to speculate that sanctions by the U.S. against China, over Beijing's national security legislation for Hong Kong, "won't be too harsh."

"The presidential election is around the corner and President Donald Trump does not want to cause too much economic damage or stock market turbulence," Hirakawa said.

Japan's equity benchmark Nikkei Stock Average closed 1.8% up at 22,714, the highest in a month. Over 90% of company shares in the index rose with automobile companies like Nissan Motor and Suzuki Motor jumping over 5%, while Softbank Group and Fast Retailing, operator of casual clothing store Uniqlo, were up over 2%.

Companies with business in China saw their shares surge. Ship builder Mitsui E&S Holdings' shares rose 7% while electronics component manufacturer Alps Alpine jumped 5.8%.

Other Asian stock markets also rose, with South Korea's Kospi advancing 1.6% and Taiwan's benchmark jumping 1.7%. India was up over 1%.

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