China stocks rise after surprise rate cut, yuan drops Chinese stock rose, with a key index hitting a three-year high, while bond yields fell on Monday, as markets cheered a surprise rate cut that investors hope may signal the start of a fresh cycle of aggressive policies to boost flagging growth. The Peoples Bank of China bank cut one-year benchmark lending rates by 40 basis points to 5.6 percent late of Friday, taking by surprise market participants who had predicted more covert policy easing measures such as liquidity injections. The first rate cut in more than two years reflects a change of course for Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilise the worlds second-largest economy. Growth slowed to 7.3 percent in the third quarter and policymakers feared it was on the verge of dipping below 7 percent - a rate not seen since the global financial crisis. Policymakers are taking a very comprehensive look in their toolboxes and this should keep investor demand for yield intact, said Tai Hui, chief markets strategist at JP Morgan Asset Management in Hong Kong. Gains in property and brokerage stocks led the benchmark indexes in Hong Kong and mainland China higher as investors anticipated a cut in mortgage rates. Analysts at Macquarie expects mortgage rates to fall 100 basis points below what they were in the September quarter - a quantum that led to a rally in these counters in late 2012. An index of mainland property shares jumped nearly 6 percent while a property index in Hong Kong rose 1.8 percent by midday. On the mainland, the CSI300 Index of the largest companies listed in Shanghai and Shenzhen opened up 2.6 percent and raced to its highest since the end of May 2013. The Shanghai Composite Index was up 2 percent to a three-year high. Banking shares opened lower on worries that the rate cut would squeeze interest rate margins, but they had rebounded by midday on views that lower borrowing costs would help ease worries about non-performing loans, analysts said. The rise in mainland shares also lifted demand from foreign investors, with around a third of the daily quota of mainland stocks available to be bought through the Shanghai-Hong Kong stock connect scheme used up by midday. In Hong Kong, the benchmark Hang Seng index opened higher, with the main bourse up 1.9 percent by midday. RATES FALL Market interest rates fell, with the weighted average of benchmark seven-day repurchase rates, considered the most reliable indicator of Chinese money conditions, falling to 3.4360 percent from 3.6553 percent on Friday. The benchmark 10-year government bond yield plunged in morning trade to 3.53 percent, before recovering to 3.669 percent. The drop in money market rates reverberated out to the far end of the curve, with 10-year government bond yields plunging to their lowest levels since July 2013 at 3.54 percent. The Chinese currency edged lower against the dollar as the rate cut signalled a likely end to a rally in the yuan, which has risen more than 2 percent against a resurgent greenback since May. The yuan was set for its biggest daily fall since end-September with analysts predicting the currency may drop further against its Asian counterparts, especially if the central bank follows up with more easing. The fact that the Chinese authorities felt compelled to cut lending rates suggests enough concern about the economic outlook that continued Chinese currency outperformance seems much less likely, said Jonathan Cavenagh, a Singapore-based strategist for Westpac.
Posted on: Mon, 24 Nov 2014 04:57:42 +0000
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