(Bloomberg) -- Chinese stocks extended gains into the new month amid fresh signs that the nation is moving away from Covid Zero that's wreaked havoc on markets and the economy.
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The Hang Seng China Enterprises Index rose 3.7% before paring gains by more than half, following a 29% gain in November that was the biggest since 2003. The onshore yuan strengthened for the third day. Federal Reserve chair Jerome Powell's speech signaling a slower pace of rate hike also aided risk-on mood.
China has been making slow but visible progress in relaxing harsh Covid restrictions, prompting a re-rating of the nation's depressed assets. A top official in charge of the fight against Covid said efforts to combat the virus are entering a new phase with the omicron variant weakening and vaccination rates rising, while the southern manufacturing hub of Guangzhou replaced lockdowns with more targeted restrictions.
"It is clear that the authorities are setting the stage for Covid measures to be relaxed," said Justin Tang, head of Asian research at United First Partners. "Equity prices will see a boost as China joins the rest of the world in living with Covid."
Along with increased support for the battered real-estate sector, moves toward a potential reopening have lifted Chinese assets over the past few weeks. The Nasdaq Golden Dragon China Index soared 42% in November to add $205 billion in market value.
The Hang Seng Index gained 1.2% as of 10:14 a.m. in Hong Kong, while the gauge of Chinese shares trading in the city added 0.9%. The CSI 300 Index of mainland shares advanced 1.6%. Reopening stocks rallied, with a Bloomberg Intelligence gauge of Macau casino shares rising to its highest since February.
Despite the exuberance, much still remains uncertain over the timeline of reopening, with most analysts expecting material shifts to come only after the National People's Congress in March. And with the number of daily infections hitting new records, the severity of the outbreak may reach a point where officials have to resort to tighter curbs.
--With assistance from Tania Chen.
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