Fueled by a series of government stimulus measures aimed at reviving the country’s economy, Chinese stocks have surged to levels not seen in nearly two years. The rally, which has pushed Hong Kong’s Hang Seng Index to a 20-month high, is making waves not only in China but across global financial markets. Since the stimulus was announced, US-listed Chinese stocks have rebounded in a big way, catching many short sellers off guard, and leading to billions in losses. With many short sellers scrambling to cover their positions, their panic buying, combined with the buying of an irrationally exuberant market, has led to an epic short squeeze in Chinese stocks.
Hang Seng’s Historic Jump
On October 1, Hong Kong’s Hang Seng Index (HSI) soared by 6.2%, a leap that brought the benchmark’s gains to an impressive 31% over the past 13 trading sessions. This marks the index’s strongest performance since January 2023, putting it at levels not seen for nearly two years. The rally continued even though mainland Chinese markets were closed for the Golden Week holiday.
The surge in Hong Kong was driven by companies with strong ties to the real estate sector, which has been buoyed by the latest stimulus efforts from Beijing. Longfor Group Holdings (OTC: LGFRY), a major property developer, saw its shares skyrocket by 26% today, while Hang Lung Properties (OTC: HLPPY) and China Overseas Land & Investment (OTC: CAOVY) gained 13% and 16%, respectively.
Chris Weston, head of research at Pepperstone, described the Hang Seng’s surge as being of “historic proportions,” adding:
“The only time we’ve seen anything like this was in 1973 when the index rallied 73% in a 13-day period.”
View Hang Seng Index Interactive Stock Chart on Barchart
Beijing’s Stimulus Sparks Investor Confidence
At the heart of this market frenzy are a series of aggressive economic stimulus measures rolled out by Beijing in a bid to tackle ongoing challenges in China’s economy, particularly in the troubled real estate sector. These measures include mortgage rate cuts to support homeowners, reductions in capital requirements for banks to encourage lending, and significant funds to enable companies to buy back their own shares.
“The extensive list of measures included in China’s stimulus plan is no surprise given the economic uncertainty the country faces,” said Patrick Munnelly, partner at Tickmill Group. “However, the resilience of the market in the face of geopolitical tensions is notable.”
These efforts have breathed new life into the stock market and have sent a clear signal to investors that China’s government is ready to act decisively to restore confidence and growth. This sentiment has been echoed by investors across the globe.
Thomas Fung, chief investment officer at China Rise Securities Asset Management, noted:
“Foreign investors are entering the market now because they think the Chinese government has demonstrated its willingness to act.”
Short Sellers Take $6.9 Billion Hit
While the stock market surge has been a boon for long-positioned investors, it has been a nightmare for short sellers. A report from market analysis firm S3 Partners revealed that the recent rally has erased approximately $3.7 billion in profits that short sellers had accumulated throughout the year. The losses, now sitting at around $6.9 billion, have left many traders reeling.
US-listed Chinese companies have been particularly impacted by this shift. The NASDAQ Golden Dragon China Index (NASDAQ: HXC), which tracks Chinese stocks listed in the United States, has jumped more than 36% since mid-September. The Invesco Golden Dragon China ETF (NASDAQ: PGJ), an ETF that tracks the HXC index, is up 44% over the past month.
This dramatic rebound has caused significant losses for those shorting large-cap stocks such as Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD), which were among the most popular targets for short sellers. Over the past month, shares of Alibaba and JD.com are up 40.09% and 67.79%, respectively.
Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, highlighted the risks facing short sellers moving forward, stating:
“If the market continues to rise, we expect to see a significant amount of short covering in Chinese stocks, which could drive prices even higher.”
Despite the mounting losses, many short sellers have not yet covered their positions, indicating they may still be betting on a future downturn. However, with China’s stock market rally showing no signs of slowing, analysts believe that short sellers could soon be forced to exit, further fueling upward momentum in stock prices.
Outlook and Caution
The recent surge in Chinese stocks, particularly in Hong Kong, underscores the volatile nature of the market and the power of government intervention. Yet, some experts urge caution. Fung, whose fund has recently added US-listed Chinese stocks to its portfolio, warned that the market could be entering an “overbought” phase. “The Hang Seng Index may peak around 23,000, and we need to watch closely to see how long this rally lasts,” he said.
With China’s economic future still uncertain, and geopolitical tensions adding to the complexity, investors must weigh the potential for further gains against the risks of a sudden downturn. However, as long as the Chinese government continues to back the market with substantial stimulus efforts, the optimism driving this rally is unlikely to fade in the near term.
This resurgence, while impressive, highlights the delicate balance between market sentiment and government intervention, and how swiftly fortunes can change for investors on both sides of the trade.
Chinese Stocks: Top Gainers of the Month
With the rally seemingly in full swing, let’s take a look a the top 30 US-listed Chinese stock gainers over the past month.
- Fangdd Network Group (NASDAQ: DUO) | 1-Month Gain: +1,052.63%
- Uxin Ltd. (NASDAQ: UXIN) | 1-Month Gain: +230.36%
- Alpha Technology Group (NASDAQ: ATGL) | 1-Month Gain: +170.39%
- Agora (NASDAQ: API) | 1-Month Gain: +168.48%
- CNFinance Holdings (NYSE: CNF) | 1-Month Gain: +147%
- QuantaSing Group (NASDAQ: QSG) | 1-Month Gain: +126.47%
- Xinyuan Real Estate Co. (NYSE: XIN) | 1-Month Gain: +122.5%
- UP Fintech Holding (NASDAQ: TIGR) | 1-Month Gain: +120.82%
- OneConnect Financial Technology (NYSE: OCFT) | 1-Month Gain: +107.69%
- Dada Nexus (NASDAQ: DADA) | 1-Month Gain: +105.41%
- Bilibili (NASDAQ: BILI) | 1-Month Gain: +103.01%
- LexinFintech Holdings (NASDAQ: LX) | 1-Month Gain: +89.66%
- Futu Holdings (NASDAQ: FUTU) | 1-Month Gain: +84.46%
- Lufax Holding (NYSE: LU) | 1-Month Gain: +82.02%
- Baozun (NASDAQ: BZUN) | 1-Month Gain: +74.67%
- Nio (NYSE: NIO) | 1-Month Gain: +73.73%
- JD.com (NASDAQ: JD) | 1-Month Gain: +67.79%
- KE Holdings (NYSE: BEKE) | 1-Month Gain: +67.48%
- Zeekr Intelligent Technology (NYSE: ZK) | 1-Month Gain: +62.70%
- Melco Resorts & Entertainment (NASDAQ: MLCO) | 1-Month Gain: +59.60%
- Xpeng (NYSE: XPEV) | 1-Month Gain: +59.38%
- Li Auto (NASDAQ: LI) | 1-Month Gain: +57.37%
- PDD Holdings (NASDAQ: PDD) | 1-Month Gain: +56.23%
- Weibo (NASDAQ: WB) | 1-Month Gain: +52.38%
- Yum China (NYSE: YUMC) | 1-Month Gain: +50.69%
- Kanzhun (NASDAQ: BZ) | 1-Month Gain: +50.25%
- Atour Lifestyle (NASDAQ: ATAT) | 1-Month Gain: +45.91%
- Trip.com (NASDAQ: TCOM) | 1-Month Gain: +41.39%
- Alibaba (NYSE: BABA) | 1-Month Gain: +40.09%
- Baidu (NASDAQ: BIDU) | 1-Month Gain: +38.03%
Read Next:
- This $20m Company Soars 1,700% on Medicare & Medicaid Clearance— Find out What’s Being Announced in the Coming Months in a Market 25X Larger
- Fangdd Network Group Soars 146% as Chinese Stocks Surge on Stimulus Measures
- Uxin Stock Skyrockets 83% on Retail Shift and Strong Earnings
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Disclaimer: Wealthy VC does not hold a long or short position in any of the stocks, ETFs or cryptocurrencies mentioned in this article.
The post The Big Short Squeeze: Top Performing Chinese Stocks of the Month appeared first on Wealthy Venture Capitalist.
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