China Stock Traders Ponder How Far Blockbuster Rally Can Go

(Bloomberg) -- As Chinese stocks in Hong Kong cap their best two-week rally since 2007, questions are arising over just how far this rebound can go.

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The Hang Seng China Enterprises Index has gained 36% since last month’s low, with a bulk of the gains coming after Beijing’s bumper stimulus announcement on Sept. 24. Some stocks have seen astronomical gains as share prices more than doubled in a matter of days.

While the stimulus package has unleashed a wave of buying and seen strategists including those at BlackRock Inc. turn bullish on the once beaten-down market, some naysayers are now starting to emerge. Rajiv Jain, who manages the top-performing $23 billion GQG Partners Emerging Markets Equity Fund, expects the rally to be fleeting while Nomura Holdings Inc. economists are warning against the risk of a 2015-like bubble crash.

In many ways, the way forward for Chinese equities depends on whether Beijing will follow up with more concrete measures to prop up the economy. Some investors are also waiting to see if data from one of the country’s most important holiday seasons shows signs that consumer spending has improved. Onshore markets are poised to reopen after the Golden Week holidays on Tuesday.

“Further fiscal stimulus will likely be announced in the next few weeks that is more consumption driven, such as social benefits and welfare,” said Britney Lam, head of long-short equities at Magellan Investments Holding Ltd. “Global asset allocation shifting back to Chinese equities could be a significant tailwind shift.”

The Hang Seng China Enterprises Index closed 3.1% higher on Friday, resuming its rally following a one-day blip, as investors pinned hopes that data on the nation’s holiday spending will provide more impetus for the market. It has gained more than 27% over the past two weeks, the most since August 2007.

Leisure travel demand during the Golden Week holidays has been resilient, with travel traffic gaining momentum, Citigroup Inc. analysts said. China saw 21.4 million railway trips on the first day of the holiday, a record single-day volume, state news agency Xinhua reported, citing China State Railway Group.

Shares of e-commerce firms Meituan and Alibaba Group Holding Ltd. were the top contributors to gains on the HSCEI gauge on Friday.