China and Hong Kong stocks rebound on expectations sell-offs are overdone amid virus outbreak

China’s stocks rebounded from a sell-off on optimism that the impact of the coronavirus on economic growth will be short-lived and the decline was excessive.

The Shanghai Composite Index rose 1.3 per cent, or 36.68 points, to 2,783.29 on Tuesday after a 7.7 per cent plunge a day earlier. The technology-heavy ChiNext gauge of small-caps rallied 4.8 per cent, signalling a quick recovery in the appetite.

Meanwhile, Hong Kong’s Hang Seng Index rebounded for a second day, gaining 1.2 per cent to 26,675.98.

While the numbers of the confirmed coronavirus cases and fatalities are still on the rise, HSBC Jintrust Fund Management says the panic selling offered a good buying opportunity and Western Asset, a unit of Legg Mason, argues that the impact on China’s economy will be short-lived, given the ample policy manoeuvre in the Asian nation.

“Even in the worst-scenario case, the epidemic is expected to have an inflection point in summer,” said Min Liangchao, a Shanghai-based strategist at HSBC Jintrust Fund. “The novel coronavirus will dampen market sentiment, but derail the uptrend on the market in the medium term. Panic selling creates a very good buying opportunity. The valuations of A- and H-shares will be more attractive after the pullback,” referring to the stocks trading on the mainland and the city.

Overseas investors were undeterred by the pandemic, loading up on Chinese stocks through the Stock Connect with Hong Kong for a second day in the Lunar New Year. They spent almost 8 billion yuan (US$1.14 billion) buying the stocks on Tuesday, following the purchase valued at 18.2 billion yuan a day earlier.