Rally spreads to Shanghai as confidence grows

China’s equities rebound is shifting up a gear, analysts said, although trading closed mixed on Tuesday with Shanghai’s bourse down, Shenzhen’s up and Hong Kong’s bourse only slightly off.

A rally that started in Hong Kong-listed equities is spreading to the $6.3 trillion mainland market, where Shanghai’s benchmark gauge on Monday posted its best two-day climb since March and the Shenzhen Composite Index is now at an almost three-week high.

Trading volume jumped on Monday amid broad gains that saw 90 stocks advance for each that fell.

Chinese companies’ shares — whether listed at home, in Hong Kong or in the US — are among the world’s best performers in August as fears of a hard landing in the world’s second-biggest economy recedes and the yuan stabilizes.

While one analyst said technical indicators were flashing a warning that the rally may be overheating, HSBC Holdings Plc remains nonetheless bullish.

“The international mood on China is improving,” said Herald van der Linde, the HongKong-based head of AsiaPacific equity strategy at HSBC. “Investors are still substantially underweight on China. In that sense there’s much more to go.”

The Shanghai Composite Index climbed 2.4 percent on Monday, extending Friday’s 1.6 percent advance and closing above its 200-day moving average for the first time in a year. Shares were lifted by speculation merger activity in the real estate industry will increase and the central bank will add to stimulus.

Stocks in Shenzhen and Hong Kong also gained after the securities regulator said a long-delayed exchange link between the two cities will start in 2016.

The Hang Seng China Enterprises Index rose 1.6 percent on Monday to its highest level this year. The measure has rallied 8.4 percent this month, the best performance among 94 global equity gauges tracked by Bloomberg, while the Bloomberg China-US Equity index has jumped 8.3 percent and the Shanghai measure has increased 4.9 percent. The MSCI All-Country World Index is up 1.2 percent.

“Overseas investors were very wary of China and now that they’ve seen more evidence that the macro economy is stabilizing, it’s given them the confidence to come back to the China market,” said Geoff Lewis, Hong Kongbased senior strategist for Asia at Manulife Asset Management.