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After upbeat tourism data, China stocks are primed for a bullish reopen.

A worker arranges papers near an electronic board displaying Shanghai shares trading index on a brokerage house in Beijing, Monday, Feb. 5, 2024. Chinese shares gyrated on Monday, sinking to 5-year lows, after stock market regulators sought to reassure jittery investors with a promise to crack down on stock price manipulation and "malicious short selling." (AP Photo/Andy Wong)

Chinese stocks are expected to start strong as traders return from the Lunar New Year break, buoyed by positive tourism data. During the week-long holiday, mainland China’s trading was halted, but offshore Chinese shares saw gains, indicating potential for onshore stocks to catch up.

The holiday period saw robust spending, suggesting increased consumption despite broader economic challenges like deflation and a property crisis. This positive data is likely to boost equities temporarily, supporting efforts to restore investor confidence.

However, concerns persist about the sustainability of any rebound given underlying economic issues. While holiday-related data showed promising signs for service industries, the long-term outlook remains uncertain amid deeper economic challenges.

Chinese stocks in Hong Kong surged following reports of increased rail trips, online hotel bookings, and strong tourism numbers in Macau. This positive sentiment was reflected in the performance of key players like China Tourism Group Duty Free, Trip.com Group, Meituan, and JD.com.

Options data indicates growing bullish sentiment, with investors favoring call options. The recent rebound in Chinese stocks was supported by state intervention and regulatory changes aimed at stabilizing the market.

Looking ahead, investors are hopeful for further policy support and stimulus measures, especially ahead of key annual meetings in March. The central bank’s decision to maintain interest rates reflects a cautious approach amid ongoing uncertainties.

While short-term optimism prevails, doubts linger about the market’s long-term prospects. Global investors remain wary, with shorting Chinese stocks becoming increasingly popular. The market’s trajectory will depend on factors like government policies, economic growth targets, and fiscal measures in the coming months.

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