Chinese Stocks in US Rally, Erasing Most of Record Selloff

(Bloomberg) — Chinese stocks in the US are extending their rally after a record selloff on Monday, as Beijing’s pledge to support its financial markets lifted investor confidence and retail traders bought the dip.

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The Nasdaq Golden Dragon China Index rose 7.2% on Wednesday, bringing its two-day gain to 12%, the most since April. The index has erased most of its losses from Monday, when it sank 14%. Among the top performers, Alibaba Group Holding Ltd., Inc. and Pinduoduo Inc. jumped more than 8%, while Lufax Holding Ltd. rallied 13%.

Some investors saw a glimmer of hope after China’s central bank and foreign-exchange regulator vowed to ensure the healthy development of financial markets and reiterated that the yuan would be “basically stable.” The comments followed President Xi Jinping’s tightening of control over the government, which spurred fears among foreign investors that his strategy will stifle the nation’s economy and private enterprise.

The offshore yuan surged by a record, joining a broad rally against the dollar as investors bet that the Federal Reserve will moderate the pace of its rate hikes. The strength of the move caught out traders, who also reported seeing Chinese banks selling the greenback to help drive the currency’s rebound from an all-time low.

“While sentiment is likely to stay depressed and markets could remain volatile until concrete policy actions emerge, pro-growth announcements could lead to sharp rallies, as happened in May or June,” UBS Global Wealth Management Chief Investment Officer Mark Haefele wrote in a note Wednesday.

The risks and upsides for China equities are balanced, and investors should consider sticking to benchmark allocations for Chinese stocks rather than going underweight, according to Haefele. “Those with a lower allocation could consider buying on dips, and we continue to recommend positioning in sectors with resilient earnings given the prevailing headwinds,” he wrote.

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That’s exactly what some traders did during Monday’s epic selloff. The…


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