(Bloomberg) -- Chinese shares and the onshore yuan climbed on their return from a holiday, with sentiment boosted by Beijing’s supportive policy stance.  

The CSI 300 Index rose 1.5% to the highest since October, with consumer and health-care sectors leading the gains. The onshore yuan advanced as much as 0.6%. The assets were playing catch up to gains seen in offshore peers while mainland markets were shut Wednesday through Friday. 

Battered Chinese assets are getting a second look as a combination of earnings recovery, policy support and cheap valuations lure investors. The latest catalyst came from the Politburo meeting just before the trading break, when China’s top leaders vowed to explore new measures to tackle a protracted housing crisis and hinted at possible rate cuts ahead.  

“We think the rally can sustain for a bit” as valuations are still low and positioning from hedge funds and long-only funds remain near five-year lows despite the recent buying, Sunil Koul, APAC equity strategist at Goldman Sachs, said in a Bloomberg TV interview. “This time it seems we have genuine investor demand, both from long-only and hedge funds.” 

Read: Worst of China Stocks ‘Should Be Behind Us’ for 2024, BofA Says

Chinese stocks listed offshore rallied when mainland markets were closed. The Nasdaq Golden Dragon China Index jumped 8.5% during that period, while a Hang Seng gauge of Chinese stocks rallied 4.4% over the two-day stretch through Friday.

Foreign funds have been returning to Chinese and Hong Kong stocks, though whether this is a tactical rebound or a more sustainable re-rating remains under debate. Bank of America Securities said the worst in terms of fund outflows has passed, while UBS Group AG strategists said earnings for mainland-listed stocks likely bottomed in the first quarter. 

Overseas investors continued to boost holdings of mainland shares on Monday after buying for three straight months through April, the longest buying streak in a year. 

For the rebound to extend, investors were looking for firm evidence of consumption recovery in the holiday data. Travelers made 28.2% more trips but spending only rose 13.5% from the 2019 break, the Ministry of Culture and Tourism said in a statement Monday.  

Read: China’s Thrifty Travelers Show Consumer Confidence Remains Weak

The rally in Hong Kong stocks cooled, with the Hang Seng China Enterprises Index ending 0.4% higher. That came after last week’s rally following the Politburo statement, which said authorities will look for ways to deal with unsold properties.  

“I worry about the market potentially over-reacting to property policy comments from Politburo, because there wasn’t immediate stimulus and details are yet to be sorted out, which leaves room for disappointment,” said Xin-Yao Ng, director of investment at abrdn 

China’s major stock indexes are poised to gain this month, helped by looser monetary policies overseas, foreign inflows and upbeat economic data, Shanghai Securities News reported, citing analysts. Listed companies are increasing dividend payouts to lure investors, with the amount handed out in fiscal 2023 accounting for 42% of the companies’ total net profit attributable to shareholders for the year.  

The onshore yuan jumped as much as 0.6% on Monday to 7.2009, after the central bank set the daily reference rate for the currency stronger than the previous session. The offshore yuan slipped after last week’s rally. 

--With assistance from Sangmi Cha, Abhishek Vishnoi, Yvonne Man and David Ingles.

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