HONG KONG - Hong Kong’s benchmark Hang Seng Index rose 1.59 percent to 19,376.53 on Thursday, driven by a rally in property shares amid policy tailwinds. 

The Hang Seng Mainland Properties Index, which tracks Chinese mainland property companies listed in Hong Kong, was up 4.92 percent. Top gainers included the developers China Vanke and Longfor Group whose shares surged around 16 percent and 11 percent respectively. 

Hong Kong's stock market has been the standout performer recently due to its low valuation, underweight positions, and a raft of market-rescue measures. Since its late-January lows of below 15,000, the benchmark has rebounded more than 20 percent into bull-market territory

Hong Kong's stock market has been the standout performer recently due to its low valuation, underweight positions, and a raft of market-rescue measures. Since its late-January lows of below 15,000, the benchmark has rebounded more than 20 percent into bull-market territory. 

The rally signals a much-needed turnaround after a major policy shift for the nation's indebted real estate sector, which was once a pillar of growth but is now a heavy drag on the world's second-largest economy.

ALSO READ: Hong Kong stocks resume bullish trend

The Political Bureau of the Communist Party of China Central Committee — the Party's top decision-making body — held a meeting on April 30 and said it would improve measures to address supply outstripping demand, known as excess housing inventories.

“Regarding the property sector, the Politburo meeting's statement mentioned not only the focus on completing the construction of pre-sold housing properties but also for the first time a top-leadership directive to coordinate national and cross-ministries efforts to resolve the inventory overhang in the housing sector,” said Redmond Wong, chief China strategist at Saxo Market. 

Two major Chinese urban centers, Hangzhou in East China's Zhejiang province and Xi'an in Northwest China's Shaanxi province, scrapped restrictions on housing purchases earlier this month.

Furthermore, Foshan, one of the 11 cities of the Guangdong-Hong Kong-Macao Greater Bay Area, announced it would encourage state-owned enterprises to take part in a housing trade-in program which encourages people to swap their old apartments for new ones.

ALSO READ: HK stocks hit record high for this year on mainland’s economic recovery

Equity market investors interpreted this as increasing the probability of local governments being asked to acquire housing inventories from developers through local government financing vehicles and other government-controlled investment entities, Wong said. 

“However, it is not clear how this purchase will be financed and implemented without adding to the already stressed financial resources of local governments and how to avoid moral hazards,” he added. 

Jeff Zhang, an equity analyst at Morningstar, holds a more positive view, saying there's a declining risk with property share prices already reflecting a myriad of concerns. 

“We expect key developers’ and property management firms’ valuations to find more support amid their improving earnings outlook. Despite the recent rally in share prices, we think valuations of top-quality developers and property managers still look attractive to investors with longer time horizons,” Zhang said.