Enter multiple symbols separated by commas

At last, China stocks get something to shout about

Shanghai, China
Tomohiro Ohsumi | Bloomberg | Getty Images
Shanghai, China

Chinese shares hit a one-month high on Monday as news in China of sweeping economic reforms ignited a fresh lease of life into what has proven to be Asia's worst performing major market this year.

The benchmark Shanghai Composite stock index rose almost 2.9 percent to a peak of about 2,198, while Hong Kong's Hang Seng stock index jumped 2.6 percent to its highest level in over nine months.

(Read more: China's sweeping reforms: What you need to know)

Beijing late on Friday unveiled a 60-point reform plan for the world's second-biggest economy, which is moving away from investment-led growth towards consumption. The plan included steps to open up Chinese markets to more competition and step-up financial reforms such as giving qualified private investors the go ahead to set up banks.

It also included a decision to relax China's controversial one-child policy – this itself sparked gains of more than 10 percent in baby-related stocks in Hong Kong such as milk powder maker Yashili International.

(Read more: Is a baby boom coming for China)

"China is aiming high," said David Kuo, CEO at investing firm The Motley Fool Singapore. "It is saying these are the over-arching things we want to achieve. If they can achieve 50 percent of that, then that would be a great achievement."

"China is finally acknowledging that it's not the great allocator of capital and that companies should be able to decide if they are profitable or not. These are things we should welcome," he added.

In a sign of renewed optimism about China shares, Swiss bank UBS on Monday upgraded China stocks to "overweight" and said the market was likely to outperform Asia ex-Japan markets in the next few months.

Deutsche Bank meanwhile said it expected a 20 to 25 percent "upside" to the MSCI China index over the next 12 months from current levels around 64.48.

"The mega reform package approved by the Third Plenum is by far the most profound in a decade, if not decades, in terms of scope, depth, and impact," Deutsche Bank said in a note, referring to this month's key policy meeting of China's leaders at which the economic reforms were discussed.

"We expect market sentiment to be significantly lifted, as investors will gradually understand the increase in China's growth potential as well as the improving sustainability of economic growth and stability of the financial, real estate, fiscal, and pension systems due to reforms," Deutsche said.

(Read more: China's new home prices rise at record pace)

China's equity market has been the poorest performing major stock market in Asia this year. It is down about 4 percent, a performance that contrasts with a rise of roughly 45 percent in Japan's Nikkei index and a rise of around 16 percent in Australian shares.

Still, the market has recovered about 17 percent of its value from a 4-1/2 year low hit in June amid a spike in Chinese money market rates that sparked fears about a credit crunch.

And analysts say the market now appears to be going through something of a re-rating.

"Investors have wanted to see the reforms that have been promised come through," Andrew Sullivan, director for Asian sales trading at Kim Eng Securities, told CNBC.

"That is what we have seen in the last week really, when we first got the general statement from the Third Plenum everyone was disappointed. When we go the details on Friday everyone was emboldened and said yes we're now going in the right direction," he said.

—By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

Contact Asia News


    Get the best of CNBC in your inbox

    Please choose a subscription

    Please enter a valid email address
    To learn more about how we use your information,
    please read our Privacy Policy.

Asia Video

  • Forget A and H-shares, buy Chinese N-shares: Pro

    The high valuations of the Chinese e-commerce firms listed in New York are backed up by robust growth rates, says Kevin Carter, founder of The Emerging Markets Internet & E-commerce ETF

  • Odds of a September rate hike are rising: Pro

    The insertion of "some improvement" in the statement shows that the Fed is increasingly confident of meeting its inflation and employment goals, says Richard Iley, chief economist, emerging markets at BNP Paribas.

  • Key topics at the Boao Forum for Asia Conference

    Greg Medcraft, chairman of Australian Securities and Investment Commission, explains why financial cooperation and digital disruptions are key topics at the Boao Forum for Asia Conference.