(Bloomberg) -- Trading desks across China have become inundated with unverified talk of a shift in Xi Jinping’s Covid Zero policy, sparking an epic rally in stocks and underscoring just how desperate investors have become for signs that the country’s $6 trillion market rout is ending. 

Multiple screen shots purporting to show the world’s second-largest economy is moving closer to a reopening have been circulating on Twitter, WeChat and other social media platforms since late Monday.

While none of them have been confirmed -- and all outward signs from Chinese officialdom are that the Covid Zero policy remains intact -- investors have propelled the Hang Seng China Enterprises Index to an 8.4% two-day gain in Hong Kong, paring its slide since February 2021 to 56%. Trading volumes have soared, and the Chinese yuan has strengthened from a 15-year low against the dollar.

“It’s all hearsay, and there’s no way to either prove the rumors true or false in the short term,” said Du Kejun, partner at Beijing Gelei Asset Management Center Limited Partnership. “At the end of the day, it’s just that people are eager to buy the selloff.”

Even by the standards of a market notorious for rumor-fueled swings, this week’s frenzied moves stand out -- particularly against a backdrop of continued lockdowns and virus flareups across China. 

Read: China Locks Down Area Around Foxconn’s ‘IPhone City’ Plant (1)

The market gains have been stoked by hope that Xi will relent on Covid Zero to rescue the ailing economy after he solidified his grip on power at last month’s Party Congress. But the most powerful Chinese leader since Mao Zedong has given no public indication of a shift, and experts have cautioned that the country has made too little progress on vaccination to reopen without a surge in deaths.

For investors worried about missing out on a rally when it does finally come, the stakes are potentially enormous. When Chinese shares surged from their lows in the wake of the 2008 global financial crisis, the bulk of the gains occurred during the span of a few months, followed by years of choppy trading. 

“It just shows that there is a lot of pent up demand for Chinese equities, which have been beaten to death in the last six months,” said Manish Bhargava, fund manager at Straits Investment Holdings in Singapore. The market “could stage a massive rally if Beijing does announce a gradual reopening,” he said.

The Hang Seng China Enterprises Index gained as much as 3.2% on Wednesday before trading in Hong Kong was halted due to an approaching tropical storm. Reopening stocks including vaccine makers, airlines and casino shares led the advance, with CanSino Biologics Inc. rising 63% in Hong Kong. 

Wild Swings 

The market frenzy was first triggered by social media posts that a committee was being formed to assess ways to exit Covid Zero. Another unconfirmed document made the rounds on Wednesday, purporting to show that China is expected to hold a meeting on Friday to announce a slew of changes including shortening mandatory quarantine.

“It seems to me that people are sort of choosing to believe what is out there,” said Hao Hong, a partner at Grow Investment Group, who has circulated some of the speculation on Twitter. “The market has been so oversold. People have to cover their shorts, and those who don’t have positions would fear to miss out the rally. And that’s why people are participating.” 

Beijing’s stringent Covid restrictions have been the biggest concern for investors, making the market sensitive to the slightest signs of a change in the policy. Covid curbs and lockdowns have made China stock measures some of the world’s worst performers this year. 

Even with growing market speculation, China has shown little signs of loosening its Covid restrictions. Authorities locked down an area where Foxconn’s iPhone plane is located on Wednesday afternoon. On Tuesday, Chinese Foreign Ministry spokesman Zhao Lijian said he’s “not aware” of a committee to assess Covid Zero exit scenarios. 

“People may have misunderstood when they see the headline that it is about completely opening up, but in our view it is quite unlikely for China to completely abandon Zero Covid,” said Zerlina Zeng, senior credit analyst at CreditSights. “It is politically sensitive to do away with it because during the party congress, the rhetoric around Zero Covid has been so strong.” 

--With assistance from Ishika Mookerjee, Charlotte Yang, Wenjin Lv, Lorretta Chen and Yuling Yang.

©2022 Bloomberg L.P.