Chinese stocks advanced on Monday as a loosening of Covid-19 restrictions in Bejing increased bets that economic activity will pick up.

The CSI 300 Index jumped 1.9%, the most in more than two weeks, as traders returned after the long weekend. Shares related to electric vehicles led the advance after BYD Co. posted strong May sales. The smaller, growth-heavy ChiNext gauge rallied near 4%.

China’s recent Covid flareup has started to trend down in the last couple of weeks, allowing authorities to loosen the strict curbs put in place and spurring optimism among equity investors. The easing in Beijing comes after the financial hub of Shanghai last week moved toward dismantling a bruising two-month lockdown.  

“The expectations for economic recovery is rising as Beijing and Shanghai try best to resume work and production,” said Meng Shen, a director at boutique investment bank Chanson & Co in Beijing. He added that various local governments tailoring policies to boost the economy following Premier Li Keqiang’s recent call is also providing support.

READ: Chinese Officials Vow to Carry Out Plans for Growth Stimulus (1)

The CSI gauge climbed 2.2% last week, capping its third weekly advance in four. A rethink of earnings expectations is also adding to optimism that the worst may be over for China’s beleaguered stocks. 

Goldman Sachs Group Inc. and China International Capital Corp. expect profits for firms in the MSCI China to rise in the second half of this year. Morgan Stanley said sentiment in China’s onshore market has recovered from this year’s low, based on various indicators. 

READ: Earnings Beats Raise Hope for China Equity Outlook: Taking Stock

Meanwhile, China’s services activity contracted more than expected in May, with data over the long weekend showing the hit to consumer spending from Covid curbs will linger into this month. 

This suggests money managers may focus more on picking sectors rather than being bullish across the board. 

“The growth and new energy cohort is proving to remain the driving force in the rebound,” said Yang Zhiyong, a fund manager at Beijing Gemchart Asset Management Co. “Institutional investors are still heavily positioned in green stocks and ultimately they are seen to have much larger room for imagination.”

The rebound in the green sector could last until first-half earnings are released, when they will be further scrutinized, Yang added. 

Stocks also climbed in Hong Kong, with Meituan providing the biggest boost, after the delivery giant’s first-quarter sales beat consensus. 

Source by: bloomberg