(Bloomberg) -- Stocks in Hong Kong surged the most since mid-March as trading in the financial hub resumed after a holiday, playing catch-up to the rally in global equities.  

The benchmark Hang Seng Index jumped 5.9% on Wednesday, led by tech and finance names. The Hang Seng China Enterprises Index of Chinese firms listed in the city surged 6.3%. Such gains may boost mainland shares once they reopen next week after the Golden Week holiday.

The bounce in Hong Kong offers some reprieve for investors after losses this year that have been among the worst in the world. An index of global stocks soared the most since April 2020 on Tuesday, when Hong Kong was shut, as weak US economic data spurred hopes that the Federal Reserve will be less aggressive in raising interest rates. 

READ: Asian Stocks Extend Gains After US Equities Rally: Markets Wrap

The Hang Seng Index slumped 21% last quarter in its worst performance in more than a decade, as investors shunned stocks on China’s Covid restrictions, frictions between Beijing and Washington and a property market slump. While the city’s shares may get some support if risk appetite revives globally, these unique challenges may make it harder to outperform peers.  

“This might just be a short squeeze after a terrible quarter, and so many months of bad performance, and there may be some rebalancing heading into this quarter,” said Kerry Goh, chief investment officer at Kamet Capital Partners Pte. “Volumes are also thin with mainland markets out, which is exacerbating the moves.”

What Bloomberg Intelligence says:

Although onshore markets may be closed, China investors may be closely watching the consumer and retail spending over the week-long holiday for signs of recovery as the latest Covid wave subsides. October will be an eventful month with the 20th Party Congress, which will kick off what has historically been the strongest quarter for Chinese stocks.

-- Marvin Chen, equity strategist

Trading volume for the Hang Seng was at 73% of the three-month average on Wednesday. HSBC rallied along with stocks that have heavy UK exposure after the Truss government moved to scrap a proposed tax cut. BYD Co. also jumped 9.3% after the electric-vehicle maker notched up its seventh consecutive monthly sales record in September.

READ: UK-Exposed Stocks Rally in HK After Truss U-Turn on Tax Plan

The Hang Seng Tech Index soared 7.5% after hitting the lowest since its inception on Monday. 

Investors are now looking to China’s twice-a-decade Party congress starting mid-October for fresh market impetus. Hopes are high for further stimulus to revive the property sector, while many see a shift away from Covid Zero stance as unlikely in the near term. 

The persistence of Covid restrictions will likely keep traders on the sidelines, wary of the sustainability of any market rebound.  

“We are not moving in as yet since our last move into Hong Kong-listed stocks in the third quarter didn’t deliver,” said Goh at Kamet Capital Partners. “So we are waiting and watching just like everybody else for the 20th Party Congress for new catalysts.” 

(Updates with closing prices.)

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