(Bloomberg) -- China’s stocks pulled back from the verge of a bull market, with the muted reopening from a week-long Lunar New Year break indicating that traders are waiting on new catalysts after a three-month rally.  

The CSI 300 Index pared a bulk of its gains to end just 0.5% higher, taking its advance from an end-October low to a little less than 20%. The onshore yuan strengthened as much as 0.8% versus the greenback.  

The increase was more modest than the jump seen when Hong Kong reopened last Thursday. While holiday spending showed the world’s second-largest economy is bouncing back after a massive Covid Zero exit wave, some investors see the market taking a breather after a relentless rally that made Chinese stock gauges the world’s top performers. 

“It seems like a classic move for onshore — open high then go lower. I think the market is very excited about the Chinese New Year data, but in reality if you look at the details, it is kind of mixed,” said Willer Chen, senior analyst at Forsyth Barr Asia Ltd. 

READ: China Holiday Travel, Box Office Rebound After Covid Zero (1) 

During the first Lunar New Year holiday since the Covid Zero exit, travelers swarmed scenic destinations, box office sales jumped and bookings of hotels, guest houses and tourist spots exceeded the comparable period in 2019. Yet residential sales by area declined 14% from a year earlier during the holiday week, according to data by China Real Estate Information Corp., underscoring the challenges in reviving the sector. 

The Shanghai Composite Index eked out a 0.1% gain, while shares in Hong Kong slumped after climbing last week on their return from holidays. The Hang Seng China Enterprises Index, which tracks Chinese stocks listed in Hong Kong, fell 3.6%. 

“The correction of Chinese offshore equities and the recent trading pattern adds onto our conviction that market is transitioning beyond risk rally phase,” Morgan Stanley quantitative strategist Gilbert Wong wrote in a note.  

A slew of negatives remain for the market, including the Biden administration securing an agreement with the Netherlands and Japan to restrict exports of some advanced chipmaking machinery to China. 

Bullish Bets 

Nonetheless, a majority of analysts and strategists are holding on to their bullish views, betting on Chinese assets to continue their upward march as the economy heals. The State Council’s determination to boost consumption is another positive.  

Analysts at Citigroup Inc. see upside potential to their 5.3% growth forecast for China’s economy this year on an earlier-than-expected recovery, while Jefferies Financial Group Inc. anticipates upgrades in earnings estimates.   

Market seasonality suggests that mainland shares perform strongly after the Lunar New Year, averaging an increase of 2% in the week afterward during the past decade, Goldman Sachs Group Inc. strategists including Kinger Lau wrote in a note. 

READ: China’s Property Stocks Slump as Home Sales Fall During Holiday 

Overseas investors purchased another 18.6 billion yuan ($2.8 billion) worth of mainland stocks, increasing positions in all but one session this month to take total purchases to 131 billion yuan, on track for a record month of inflows.  

Across the Taiwan Strait, the benchmark Taiex Index jumped 3.8% as trading resumed. That lifted the benchmark gauge into bull territory with a broad rebound in chip shares boosting foreign buying in the market.   

--With assistance from Wenjin Lv and Jeanny Yu.

(Updates with closing prices.)

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