U.S.-listed Chinese stocks rally as investors turn bullish on reopening shift

The index holds 65 companies whose common stocks are publicly traded in the U.S. The majority of their business is conducted within the People's Republic of China.

The rally came as some big cities including Beijing and Shenzhen are taking steps to ease Covid testing requirements and quarantine rules amid an economic slowdown and public unrest. The move marked a shift from China's zero-tolerance approach that involved enforced lockdowns and frequent testing for the past two years.

China is poised to announce a nationwide reduction in testing requirements and allowing positive cases and close contacts to isolate at home under certain conditions, Reuters reported, citing sources familiar with the matter.

Morgan Stanley upgraded Chinese stocks to an overweight rating in light of the change in policy. Morgan Stanley had held an equal weight rating on Chinese equities for almost two years.

The Wall Street firm called the recent developments "a confirmed path towards final post-Covid reopening."

The Hang Seng Tech Index, which represents the 30 largest technology companies listed in Hong Kong, surged 9.3% in Asia trading hours. China's onshore and offshore yuan topped $7 against the U.S. dollar for the first time since mid-September. 

– CNBC's Michael Bloom and Jihye Lee contributed to this report