HONG KONG - Hedge funds and some long-term investors piled into Hong Kong stocks on Tuesday, driving an "explosive turnover" after China rolled out a wide-ranging stimulus package to spur its economy, Goldman Sachs said in a note.

WHY IT'S IMPORTANT

Analysts expect the rally could continue for the next few sessions as investors look forward to further fiscal stimulus, and are more bullish on Hong Kong stocks given they are more rate-sensitive.

Goldman Sachs said that their conference call on China, held after the market close on Tuesday, "reached maximum capacity", reflecting growing interest.

Meanwhile, UBS said the rally was mainly driven by Chinese funds and foreign hedge funds, while overseas long-term investors tracked by UBS largely took profits.

CONTEXT

Chinese stocks posted their best day in years on Tuesday after Beijing unveiled its biggest stimulus since the pandemic in a bid to prop up the ailing economy.

The broader-than-expected package offering more funding and interest rate cuts marks the latest attempt by policymakers to restore confidence in the world's second-largest economy after a slew of disappointing data raised concerns of a prolonged structural slowdown.

BY THE NUMBERS

The Hang Seng Index topped the key 19,000 level for the first time since May 28. The CSI 300 index ended 4.3% higher, while the Shanghai Composite Index surged 4.2%.

Hedge funds were outright buyers of Hong Kong stocks and accounted for 22% of flows tracked by Goldman Sachs in the city.

Meanwhile, long-only investors turned more active in the afternoon session and were more skewed to buy, representing 78% of the flows.

Turnover in Hong Kong's market surged 137% compared to the 20-day average, while that of Shanghai and Shenzhen jumped 83% and 66% respectively.

KEY QUOTE

"Note that positioning is very light in Hong Kong and China for both mutual funds and hedge funds, we expect this momentum to continue," Goldman Sachs said.

(Reporting by Summer Zhen; Editing by Varun H K)