(Bloomberg) -- A sharp rally in Chinese stocks took a breather Thursday as investors focused on the pace of reopening amid growing signs that the nation is moving away from Covid Zero.   

The Hang Seng China Enterprises Index pared most of its 3.7% gain to end 0.2% higher, following a 29% rise in November that was the biggest since 2003. Stocks rallied at the open as Federal Reserve chair Jerome Powell’s speech signaling a slower pace of rate hike also aided risk-on mood. 

China has been making slow but visible progress in relaxing harsh Covid restrictions, prompting a re-rating of the nation’s depressed assets. While that’s triggered some sharp gains over the past few weeks, investors are also coming to terms with the fact that the reopening will be a patchy process, with a full wind back of restrictions still months away. 

Read: Beijing Eases Covid Curbs, Letting Some Patients Isolate at Home

“The recent rhetoric out of China is giving investors more confidence that we are closer to the end of Zero Covid,” said Christina Woon, investment director for Asia equities at abrdn plc. Still, “the path to a full reopening is more likely to be gradual so things could remain volatile in the meantime,” she added.  

In the latest such shift, a top official in charge of the fight against Covid said efforts to combat the virus are entering a new phase with the omicron variant weakening. Beijing will allow some infected people to isolate at home, dialing back a policy that has seen everyone with Covid sent to government quarantine sites. 

Meanwhile, authorities in the southern manufacturing hub Guangzhou lifted lockdowns in most parts of the city Wednesday, while taking more targeted restrictions.   

Along with increased support for the battered real-estate sector, moves toward a potential reopening have lifted Chinese assets recently. The Nasdaq Golden Dragon China Index soared 42% in November to add $205 billion in market value. 

Despite the exuberance, much remains uncertain over the timeline of reopening, with most analysts expecting material shifts to come only after the National People’s Congress in March. And with the number of daily infections hitting new records, the severity of the outbreak may reach a point where officials have to resort to tighter curbs.   

The Hang Seng Index gained 0.8% in Hong Kong on Thursday, while the CSI 300 Index of mainland shares advanced 1.1%.  

“We shouldn’t be naive to the fact that a move away from the policy won’t be easy and there’ll be plenty of setbacks,” Craig Erlam, senior market analyst at Oanda, wrote in a note.  

--With assistance from John Cheng.

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