Yet the historic V-shape trading day repeated itself as the market’s initial negative reaction towards President Xi’s sweeping victory was quickly overtaken by optimism about a policy easing cycle to boost economic growth under the new leadership. This pattern of outperformance also coincided with our historical observation of Chinese equities’ relative strength following the Party Congresses.
2022 started on a muted tone for China following a 22% and 50% dive, respectively, for the MSCI China index and KraneShares CSI China Internet ETF - seen as a proxy for China internet stocks listed in the US - during the regulation tightening cycle in 2021. Amid mounting concerns about the country’s stance amid the Russian-Ukraine war, China indices hit an all-time-low, though this was quickly followed by the highest trading volume and price rebound for one day following the encouraging speech from Vice Premier Liu He.
Trading in the second quarter was dominated by reopening excitement as Shanghai stepped out of lockdown in June, though the third quarter saw positive sentiment fade as pandemic restrictions resurged. Negativity peaked at the commencement of the National Party Congress (NPC) in October with another all-time-low for the market.
