Stock market Photo:VCG

After a spectacular reversal a day earlier, Chinese shares continued to rally on Thursday, with huge gains for stocks in Hong Kong, as market sentiment has been boosted by a key financial meeting that moved to tackle pressing concerns over the prospects of China's economy and capital markets.

Market watchers are optimistic about Chinese stocks, with some even saying that the worst might be over; however, they also cautioned lingering uncertainties ahead given the global geopolitical situation, COVID-19 and China-US talks.

A spectacular surge across Chinese stocks on Wednesday that largely continued into Thursday in the Hong Kong market speaks volumes about an about-face in investor sentiment. 

Analysts are cautiously optimistic about where Chinese shares are heading amid a continuation of geopolitical tensions, US-led monetary normalization, and a bumpy road for China-US audit talks. They also foresee continued volatility.

Senior officials from Chinese and US securities regulators held talks on Thursday, exchanging views on a plausible roadmap for bilateral audit regulatory cooperation, Chinese financial news site cls.cn reported, quoting unidentified people close to the regulatory authorities. 

The two sides plan to strengthen communication and reach an agreement as soon as possible that complies with their respective legal frameworks, per the report.

The benchmark Hang Seng Index rallied 7.04 percent to finish at 21,501.23 points on Thursday, adding to a 9.08-percent gain in the previous session. 

The Hang Seng TECH Index, composed of the 30 largest Chinese tech firms, closed 7.76 percent higher, after a record 22.2-percent jump on Wednesday. 

Chinese mainland shares also largely extended gains on Thursday, albeit less impressively than their Hong Kong counterparts.

Feeding cheer into the market, US-traded Chinese firms made a breathtaking comeback on Wednesday, with the keenly watched NASDAQ Golden Dragon China Index posting a record 32.93-percent jump.

In a sign of the stunning reversal, more than 15 Chinese stocks soared over 50 percent in US trading, regaining $249.2 billion in market capitalization overnight, media reports said.

Hong Kong shares and US-traded Chinese stocks "have survived their worst moments," Hong Hao, managing director and head of research at BOCOM International, told the Global Times on Thursday.

The massive turnaround from a state of extreme pessimism nearly erased a confidence-shattering slump in the Hang Seng TECH Index on the first two days of the week, Hong said, citing the key meeting on Wednesday as triggering the historic bounce. 

China's top policymakers are keenly concerned about the market and stands ready to communicate with the market, Hong stressed.

A meeting of the State Council's Financial Stability and Development Committee, chaired by Vice Premier Liu He, sent a reassuring message to investors, both domestically and overseas, that the stability of the Chinese economy and capital markets is high on the government's agenda.

Frontloading of monetary policy, the prevention of risks confronting property firms, active progress on regulatory talks between China and the US, and the availability of  transparent and predictable oversight for platform firms were among the meeting's takeaways, which addressed the markets' deepest worries.

The reinvigorating takeaways, followed by an outpouring of statements from the central bank, the securities and banking and insurance regulators, and the finance ministry, among other major government departments that pledged to implement the key meeting's guiding message, showed the way toward a sustainable path of revival.

With the key meeting assuring markets of a "policy bottom" that effectively stabilizes expectations amid a convergence of uncertainties at home and abroad, it's clear that the strong downward spiral in Chinese shares had nothing to do with their fundamentals, nor did it indicate an issue with excessive valuations, Wu Jinduo, head of fixed income at the research institute of Great Wall Securities, told the Global Times on Thursday.

In a further gesture of support, the China Securities Regulatory Commission (CSRC) said in readout after a Thursday meeting presided over by CSRC head Yi Huiman that stability is the top priority, and the securities regulator will strive to address major and sensitive issues with the capital market's expectations, ecosystem and circumstances, as part of an all-out push to ensure steady operations. 

Nonetheless, there's more volatility ahead for Chinese equities, analysts said, tempering their optimism with caution. 

Uncertainties linger over the market's direction, according to Wu, citing the ongoing Russia-Ukraine conflict, among other possible causes of volatility.

With the US Fed officially embarking on a cycle of monetary tightening as the US sees more signs of a stagflation, US-listed Chinese firms are particularly vulnerable to the fallout of US markets' performance and Fed moves, said Wu.

The Fed on Wednesday announced a rate hike of 25 basis points at the end of a two-day policy meeting, the first rate increase since 2018 amid runway US inflation.

"We maintain the expectation of three or four rate hikes this year, but the ensuing tightening conditions from a very hawkish Fed will damage growth," Salman Ahmed, global head of Macro and Strategic Asset Allocation at Fidelity International, wrote in a note sent to the Global Times on Thursday.

Concerns remain over the fate of US-traded Chinese companies that have come under pressure amid the US' regulatory toughening. But hopes are high that such woes will dissipate, observers said.

The US Securities and Exchange Commission (SEC) has readied a provisional list of five Chinese firms that may be removed from US exchanges.

"We can expect many more Chinese companies to be added to the delisting list... but I'm cautiously optimistic that a deal could be made over the next couple of years between Beijing and Washington regulators that will allow Chinese companies to remain listed on the US exchanges," David Chao, global market strategist for Asia Pacific at Invesco, told reporters during a teleconference on Thursday.

Wu believed there would be an eventual deal in audit talks, and noted that overseas listings by Chinese firms have always been endorsed by policymakers.