Hong Kong and mainland stocks had their biggest rally in nearly eight months yesterday after the European Central Bank announced it would buy bonds to ease borrowing costs and Beijing approved substantial infrastructure investments.
Companies in the materials and industrial sectors had the biggest gains on optimism the measures would boost sluggish global economic conditions.
The benchmark Hang Seng Index closed up 3.09 per cent, or 592.86 points 19,802.16, marking its biggest single-day gain since January 17 this year.
The Shanghai Composite Index jumped 75.84 points, or 3.7 per cent, to 2,127.76, also the best single-day showing since January 17. The benchmark hit the highest close since August 14.
The gains were "a strong relief rally", said Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management (Asia). "Many short-term buyers jumped on those names to earn some quick money."
The Hang Seng China Enterprises Index gained 3.96 per cent, or 358.82 points, to end at 9,428.21, on hopes Beijing stimulus policies would save the world's second-biggest economy from a "hard landing".
The European Central Bank said policymakers had agreed to an unlimited bond-purchase plan in a bid to ease the borrowing cost of debt-laden countries.
"The market has been conditioned to expect disappointment from Europe for years now, so this sort of constructive action makes for significant market moves," said David Zervos, chief market strategist at Jefferies.
Closer to home, the National Development and Reform Commission (NDRC), the top economic planner, approved 30 infrastructure projects following its all-clear for 25 urban railway projects worth about more than 700 billion yuan on Wednesday.
Plans were announced to build 2,018km of road, nine sewage water treatment plants, and two waterway upgrades.
However, analysts said the A-share rally would not sustain its strength and warned investors of a correction.
"It was just a technical rebound and the market is far away from turning into a bullish mode," West China Securities trader Wei Wei said. "History tells us that stimulus measures could only lead to a boom-to-bust scenario."
Anhui Conch Cement the country's largest cement-maker, surged as much as 8.52 per cent to close at HK$21.40, on expectations that increased infrastructure projects would boost demand for building materials. China National Building Material jumped 8.84 per cent to HK$7.88.
"More than 20 per cent of China's gross domestic product is driven by infrastructure construction. And if the projects are launched smoothly, it will be a big boost to the economy," said Alma Yang, a fund manager at Shenyin Wanguo Asset Management (Asia).
Yang expects the market to keep moving up for one to two weeks.
However not everyone was convinced that Beijing's stimulus package would bolster the slowing economy.
The 4 trillion yuan (HK$4.8 trillion) stimulus package in late 2008 gave a much-needed boost to the falling Shanghai index which hit as low as 1,664.93 points on October 28 that year.
However, battered by worries of lacklustre corporate earnings for the whole year, skittish investors would cash out soon amid the rally, analysts said.