(Bloomberg) -- Chinese assets rallied amid speculation that the government will further relax its Covid Zero policy after weekend protests, with new property measures also buoying sentiment.
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The Hang Seng China Enterprises Index gained as much as 5.2%, while the offshore yuan jumped 1.1% against the dollar. Country Garden Holdings Co. led an advance in property stocks, with the bonds of key developers advancing.
Traders took solace after weekend protests against Covid restrictions subsided amid heavy policy presence, although uncertainty remains high over what the government will do next. A state media report that frequent PCR tests are unnecessary for low-risk people and a Covid briefing slated for later in the day helped fuel reopening bets.
Read more: China Health, CDC Officials to Hold Covid Briefing in Beijing
"There is growing speculation there will be an imminent announcement of the end of Covid-Zero policy and that's driving the positive sentiment," said Kiyong Seong, lead Asia macro strategist at Societe Generale SA in Hong Kong. "Markets will remain volatile as investors assess any policy shift."
Chinese assets have been facing a potential turnaround moment following moves to relax Covid restrictions and a slew of support measures for ailing developers. Key equity indexes are headed for the best month in years, though the outlook for China's Covid Zero pivot is now unclear as the nation grapples with a worsening outbreak.
Goldman Sachs Group Inc. said Monday that the nation may have a messy, but earlier-than-expected exit from its Covid Zero policy.
Tuesday's stock-market moves tracked gains in the Nasdaq Golden Dragon China Index overnight, when the gauge closed up 2.8% despite a broader US market slump.
The property sector got another boost after the securities regulator lifted a multi-year ban on share sales by builders. The removal of restrictions aims to support the "stable and healthy" development of the sector, according to a statement late Monday.
The government has been taking bolder steps recently to rescue the property sector, after its piecemeal approach earlier this year failed to reverse a slump. In another sign of easier funding access, a key program to guarantee local bond sales from developers will now accept collateral beyond just their core assets, according to people familiar with the matter.
A Bloomberg Intelligence gauge of developers jumped more than 9%, taking this month's advance to 65%. The CSI 300 Index, a benchmark for mainland shares, advanced more than 3%. The Hang Seng Index rallied 4.4%.
The country's junk dollar bonds, dominated by developers, rose at least 1 cent on the dollar, according to traders, with Seazen Group and Country Garden leading gains.
"The property measure is big for A-share developers, given the refinancing of developers in A-share has been technically suspended since 2010," said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. "This sends a strong signal to the market that CSRC wants to help developers" on their financing issues, he added.
China's offshore and onshore yuan extended gains. The offshore pair jumped as much as 1.1% to 7.1654 per dollar. Traders also offloaded government bonds on bets of a faster economic recovery following new property measures.
"Investors will be happy if the protests accelerate a move to accepting Covid and opening up the country," said Andrew Collier, a managing director at Orient Capital Research Inc. "However, Xi Jinping's history of centralized decision making is going to make it difficult for local officials to decide exactly how open they should be."
--With assistance from Charlotte Yang, Lorretta Chen, Tania Chen and Alice Huang.
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