By Chao Deng
Most shares in Asia rallied after Chinese authorities unleashed their latest round of easing measures, although Hong Kong and Australia gave up earlier gains, amid lingering worries over China’s slowing growth.
Japan’s Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK +0.23% gained 0.7%, and the Shanghai Composite Index /zigman2/quotes/210598127/delayed CN:SHCOMP +0.43% was up 0.5%. South Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 +1.02% was up 0.4%.
But Australia’s S&P ASX 200 was down 0.1% and the Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI +1.07% fell 0.2%.
“There’s always the worry that authorities did what they did because the [economic] data is worse than suggested,” said Andrew Sullivan, managing director of sales and trading at Haitong Securities. “That would be the flip side of the coin.”
China’s recent rate cuts haven’t always produced a pop in equities immediately after their announcements. The Shanghai benchmark fell in the single trading session after three of the last four rate cuts before Friday’s.
Still, the lead up to China’s Friday announcement—hopes of more easing world-wide—combined with a longer stretch of cheap borrowing in the U.S. has lifted most shares in the region to their highest levels since August. The MSCI Asia Pacific Index is on track for its best month since April 2009, up 8.9% month-to-date through Friday’s close in local-currency terms.
The Shanghai Composite Index is now up 15% from Aug. 26, when it hit the low of its summer selloff. It is up 17% since June, when the People’s Bank of China began to simultaneously lower interest rates and banks’ reserve requirements. The central bank also made a similar combination move in late August.
The benchmark has gained 38% since China’s central bank embarked on its latest easing cycle last November.
The gains Monday came after China’s central bank combined a quarter-point cut in benchmark interest rates with a half-percentage reduction in banks’ reserve-requirement ratio, all in a bid to lower corporate financing costs and pump liquidity into the economy. The bank announced the measures late Friday.
China also removed caps on deposit rates, a move designed to foster more competition and allow banks to set rates more freely. The measure could hurt banks’ profitability, and shares of several big state-owned banks fell on Monday in Hong Kong, including Agricultural Bank of China Ltd. /zigman2/quotes/200705246/delayed HK:1288 +0.63% and Bank of China Ltd. /zigman2/quotes/204682472/delayed HK:3988 +1.29% , off 0.6% and 0.5%, respectively.
But most banks’ funding liabilities were already reflected in market pricing, and an improvement of interbank liquidity would lower financing costs, Goldman Sachs Group Inc. said in a note.
Meanwhile, brokerage firms rallied with Haitong Securities Co. /zigman2/quotes/207313420/delayed HK:6837 +1.52% up 2.8% in Hong Kong.
“People expect trading volumes to be up in the short term and margin lending has gone up in recent weeks,” benefiting brokerages, said Hao Hong, managing director at Bank of Communications Co. Still, “longer term, fundamentals are pretty bleak,” diminishing the prospects of a sustained rally.
Daily trading volumes for A shares, or yuan-denominated domestic stocks, were up at 1.11 trillion yuan ($174.3 billion) on Monday, compared with a recent 370.7 billion yuan low on Sept. 30. They remain down 53% from a record on 2.36 trillion yuan reached on May 28, just before stocks sold off during the summer.
Margin loans rose to more than 1 trillion yuan last week, up as much as 11% from a recent low of 906.7 billion yuan on Sept. 30, according to the latest data from Wind Information Co. Loans are still down 56% from a record 2.3 trillion yuan in June. Borrowing to buy shares magnified gains during a yearlong rally through June and losses when investors rushed to cover their positions.