China, Hong Kong shares rally after top leaders vow more support for economy

Hong Kong - Chinese and Hong Kong stocks surged on Tuesday after leaders in Beijing

pledged fresh measures to boost the nation’s stuttering economy.

The onshore renminbi gained as much as 0.6 per cent, while the dollar bonds of Chinese builders also rallied.

With data in recent months showing growth stuttering and business activity slowing, Beijing has come under pressure to provide much-needed support,

particularly for the vast property sector.

Despite a series of announcements and minor interest rate cuts, investors have been largely disappointed by the policy response from the authorities, with very few concrete measures being unveiled.

But top leaders on Monday signalled a fresh push to get the post-Covid-19 recovery back on track, particularly for the troubled property sector, which accounts for a major part of the world’s No. 2 economy. After a meeting, the 24-person Politburo recognised “the current economic operation is facing new difficulties and challenges” and agreed that they must “implement precise and effective macroeconomic regulation, strengthen counter-cyclical regulation and policy reserves”. 

The meeting, headed by President Xi Jinping, also called for efforts to expand domestic consumption and “adjust and optimise real estate policies in a timely manner”, according to state broadcaster CCTV.

“The overall stance remains in a pro-growth mindset, but the focus is more forward-looking with an increased emphasis on addressing structural challenges (that is, local government debt) to facilitate longer-term sustainable growth,” said HSBC Greater China economist Erin Xin.

The announcement “keeps a supportive tone, which can help provide some support for the recovery, and it may provide some boost to market sentiment”, she added.

While it was nowhere near the blockbuster spending plans seen in the past, the news gave investors a boost, with Hong Kong jumping more than 4 per cent thanks to a rally in real estate companies and tech giants.

“Investors now believe the Politburo meeting sets an encouraging tone for more substantial and comprehensive policy easing down the road,” said SPI Asset Management managing partner Stephen Innes. 

“Why is it different this time? Because the lawmakers acknowledged the problem. And to fix any problem, you must acknowledge there is a problem.”

But Societe Generale’s lead Asia macro strategist Kiyong Seong said: “Overall, the Politburo fell short of so-called ‘bazooka stimulus’.

“I don’t expect a sustained impact on the market unless there is a series of strong concrete steps.”

The Shanghai Composite Index closed 2.1 per cent higher, while Hong Kong’s benchmark Hang Seng Index surged 4.1 per cent.

Australia’s S&P/ASX 200 rose 0.5 per cent, while South Korea’s Kospi Index gained 0.3 per cent.

Japan’s Nikkei index inched down 0.06 per cent as investors turned cautious ahead of interest rate decisions from key global central banks, including Japan’s.

Singapore’s Straits Times Index closed up 0.6 per cent.

The advances followed a positive performance on Wall Street, where the Dow

chalked up an 11th straight gain, its best run since 2017.

US markets are enjoying a strong 2023 so far as investors grow increasingly confident the Federal Reserve

will make this week’s expected rate hike its last,

after more than a year of tightening.

Falling inflation and figures suggesting the country’s economy remained in rude health have fanned hopes that officials can bring prices under control without causing a recession.

A broadly positive earnings season so far has also lifted spirits on trading floors, while investors will be keeping a close eye on releases this week from Google owner Alphabet, Facebook parent Meta and Microsoft.

The European Central Bank’s policy decision is also on hand, with some observers predicting it is close to bringing the curtain down on its own tightening campaign.

Its gathering comes after news that euro zone economic activity shrank at its fastest rate for eight months in July owing to cuts in manufacturing.

The reading weighed on the euro on Monday and it extended its drop against the US dollar on Tuesday. AFP