Asian stocks extend global rally after China adds to stimulus, STI up 0.9%

Passers-by reflected on a stock quotation board at a brokerage in Tokyo on Sept 29, 2015.
Passers-by reflected on a stock quotation board at a brokerage in Tokyo on Sept 29, 2015.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Asian stocks rose on Monday (Oct 26) and Hong Kong index futures signalled gains after a China unexpectedly cut interest rates and lenders' reserve requirements on Friday. The US dollar held its advance against major peers after capping its longest winning streak since January.

The S&P/ASX 200 Index rose 0.4 per cent by 9.55 am in Tokyo, with Japan's Topix index advanced 1.3 per cent with the Kospi index in Seoul up 0.3 per cent. The Asia-Pacific equity gauge climbed 0.5 per cent.

Singapore's Straits Times Index was up 0.93 per cent at 3,096.89 as of 9.48 am.

The Hang Seng China Enterprises Index is close to entering a bull market after advancing 18 per cent from a Sept 7 low. The Shanghai Composite Index has risen almost 17 per cent since its bottom in August.

"China's policy easing suggests the Chinese economy still faces significant downward pressure," Australia & New Zealand Banking Group analysts led by Cherelle Murphy wrote in a note to clients. "While central bank actions across the G10 have typically been viewed in a 'bad-news-is-good' framework, the easing from the PBOC in China late on Friday was seen as a foreboding sign for global growth."

China begins its annual policy-setting plenum on Monday, with investors awaiting next year's official growth targets after the PBOC unleashed a flood of liquidity with cuts to interest rates and bank reserve ratios, while also abolishing a ceiling on what lenders can pay for deposits.

Coming on the heels of the European Central Bank hinting at further easing and with the Bank of Japan deciding policy this week, the move underscores policy divergence with the US, where traders put the odds of the Federal Reserve raising rates Wednesday at just 6 per cent.

China's one-year lending rate was cut to 4.35 per cent from 4.6 per cent, the PBOC said on its website on Friday, while the one-year deposit rate will fall to 1.5 per cent from 1.75 per cent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.

Standard & Poor's 500 Index futures fluctuated on Monday after the US gauge jumped 1.1 per cent on Friday, erasing a loss in 2015 that reached as much as 9.3 per cent on Aug 25. Google parent Alphabet, Amazon.com and Microsoft added more than US$80 billion (S$111.7 billion) in market value after earnings topped estimates.

The Nasdaq 100 Index surged 2.7 per cent to the highest level since July on Friday, as Amazon jumped 6.2 per cent after reporting third-quarter sales that topped analysts' estimates thanks to its fast-growing cloud-computing division. Alphabet climbed 5.6 per cent and Microsoft gained 10 per cent to the highest level since March 2000.

"The results are the dominant force at the moment and there's an underlying positive tone," Mr Otto Waser, chief investment officer at R&A Research & Asset Management AG in Zurich, said on Friday. "We had a bit of a weak start in the earnings season, and it now looks like some companies are going to be able to deliver good results."

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, slipped less than 0.1 per cent on Monday. The measure rose for a seventh day on Friday to the highest level this month. The US dollar is benefiting from policy divergence as central banks outside the US struggle to bolster growth, while Fed officials are adamant that rates will begin to rise in the near future.

The yen added 0.3 per cent to 121.16 per US dollar on Monday. Japan's currency fell 0.6 per cent, the most since Sept 2, on Friday to cap its biggest weekly drop since May 29.

The yuan was little changed on Monday in offshore trading. The PBOC's moves "will keep the yuan under downward pressure, drive Chinese money-market rates lower, but have a largely a muted effect on longer-term bond yields", Mr Elias Haddad, a Sydney-based currency strategist at Commonwealth Bank of Australia, wrote in a note.

International Monetary Fund representatives have told China that the yuan is likely to join the fund's basket of reserve currencies soon, according to Chinese officials with knowledge of the matter.