London CNN Business  — 

Global investors have two big questions on their minds: When will the Federal Reserve become less aggressive in its campaign against inflation? And does Beijing plan to ease its strict “zero-Covid” policy any time soon?

Markets were disappointed this week when the Fed indicated it could push interest rates even higher than previously expected, weighing on stocks in the United States and Europe. But in Asia, investors have been getting excited over speculation that coronavirus restrictions in China could be eased.

Hong Kong’s Hang Seng Index (HSI) soared more than 5% on Friday and finished the week up 8.7%, logging its biggest gain since 2011. China’s Shanghai Composite (SHCOMP) rose 5.3% this week, its best performance in more than two years.

The rallies followed steep sell-offs in the wake of China’s Communist Party Congress last month. Investors were disappointed that Chinese leader Xi Jinping did not unveil stronger measures to combat a sharp economic slowdown. He also offered no signs the country would move away from its rigid approach to containing the spread of Covid-19, which has choked off growth.

In recent days, lockdowns have caused significant disruption for Apple (AAPL) supplier Foxconn and Disney (DIS), as well as car makers and fast food restaurants.

David Chao, global market strategist for Invesco Asia-Pacific, said some of this investor angst appears to have lifted.

“There is so much pessimism and negativity surrounding China, surrounding Chinese growth, and I think a lot of that has already been discounted,” Chao said. Getting past the party congress has eliminated a key source of uncertainty, he added.

Social media chatter that China could reopen its border with Hong Kong soon fed market optimism on Friday, as did a report from Bloomberg that US auditors had finished an inspection of Chinese firms ahead of schedule. The Hang Seng shot up 5.4%, while the Shanghai Composite gained 2.4%.

Health officials in China have scheduled a press conference for Saturday amid growing frustration and resentment toward zero-Covid rules and resulting lockdowns.

“The risk, of course, is there could be some disappointment here,” said Mitul Kotecha, head of emerging market strategy at TD Securities, speaking of the potential for looser coronavirus restrictions. “There’s only rumors and speculation at the moment.”

Stocks in China and Hong Kong have been battered this year as investors have weighed darkening prospects for China’s economy.

The country, a crucial engine of global growth, has been slammed by a crisis in its real estate sector. At the same time, Beijing’s Covid approach continues to hurt businesses and crimp consumer spending.

The International Monetary Fund estimates that China’s economy will expand by just 3.2% in 2022 and 4.4% in 2023, a big decline from the 8.1% growth it notched in 2021.

The Hang Seng has plummeted 31% year-to-date, compared to a 22% drop in the S&P 500. The Shanghai Composite is 16% lower in 2022.

Chao said investors have had to contend with the notion that China could grow much more slowly as it tries to reduce its reliance on debt and as investment declines in the real estate sector, which has recently accounted for as much as 30% of gross domestic product.

“We’re not going to see that type of investment-led economic growth over the next 10 years,” Chao said.

But, he emphasized, that’s not necessarily a bad thing, as growth starts to look more sustainable. And even if China’s economy is growing just 3% or 4%, that will look much better than Europe and the United States, which are at risk of recession.

“From what I see, it’s apparent to me that there is capital on the sidelines,” Chao said. “There are investors waiting to jump back in to the China story.”

— Steven Jiang contributed reporting.