China's stock market has staged a big rebound that's poised to push on, strategist says

• The Chinese stock market has rebounded and analysts said the rally looks set to continue.

• Two major economic indexes have flagged positive signs that Chinese stocks have bottomed.

• After six months of outflows, foreign investors are gradually putting money to work in China again.

China's stock market may have shaken its label as "uninvestable," with an economic rebound and a rally that could have plenty more room to run.

LPL Financial strategist Adam Turnquist wrote this week that long-held bearish calls on China's property and stock market have shaken investor confidence. However, recent strong economic indicators suggest that the country's economy is "climbing out of the bottom."

"As is often the case, extremes in sentiment often work better as contrarian signals commonly found at important inflection points in the market," Turnquist wrote in a note on Thursday.

The MSCI China Index, a go-to for global investors eyeing mid to large-cap stocks, has bounced back with a solid 20% surge from its bear market lows.

"Roughly one-third of constituents reached new four-week highs last week, while close to 50% are also above their 200-day moving average, marking the highest percentage reading since August," he said.

Another momentum gauge that compares the current price of an asset with its historical performance — the Percentage Price Oscillator — recently flashed a buy signal, adding more weight to the claim that the rally can push higher.

China's recent reputation as "uninvestable" has been fueled by mounting real estate troubles, a plummeting stock market and dismal consumer demand that's sparked a deflationary spell for the country.

However, after six straight months of outflows, foreign investors are returning and are putting money to work again in the country's markets.

"Northbound flows that link Hong Kong and mainland stock exchanges in China have been positive for three straight months, pouring nearly 100 billion yuan into mainland shares since February," the note added.

Since the start of 2024, Beijing has rolled out measures to revive its markets and the economy, including limiting short selling and promoting a new real estate development approach while increasing construction efforts. The country's economy grew 5.3% in the first quarter of 2024.

Billionaire investor Ray Dalio said in March that it's the best moment to invest in China because it's cheap, while also warning the country could be headed for a "100-year storm" with several major economic challenges.

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