Hong Kong leads Asian market rally on China support hopes

Hong Kong surged more than three percent in the morning, but is still down around 10 percent since the turn of the year – Copyright AFP Muhammad FAROOQ

Hong Kong led a rally across Asian markets Tuesday as traders were cheered by reports that Chinese authorities were considering a blockbuster boost to equities after a painful start to the year.

The surge came after another record day on Wall Street where optimism about the outlook for the US economy has taken the place of expectations for a string of interest rate cuts starting in March.

Investors were also keeping an eye on the Bank of Japan’s board meeting, hoping for fresh clues about its plans for monetary policy as inflation remains elevated and the yen sinks, which has in turn sent the Nikkei towards an all-time high.

The Hang Seng Index in Hong Kong piled on more than three percent in the morning session and Shanghai also pushed higher after it emerged that Premier Li Qiang called for more “forceful” measures to support China’s battered stocks and give a shot in the arm to investor confidence.

Hong Kong has lost around 10 percent since the turn of the year and Shanghai more than seven percent on worries that officials were not doing enough to help the economy, which grew last year at its slowest pace since 1990, outside the pandemic years.

Authorities are looking at a raft of initiatives, Bloomberg reported, adding that policymakers were seeking to mobilise nearly $280 billion, mainly from the offshore accounts of state-owned enterprises.

“It sounds like something had been readied in response to the recent equity rout,” Neo Wang, at Evercore ISI, said.

“The market was poor enough to warrant such elevated attention — China cannot afford to see A-shares sinking toward the Lunar New Year holidays.”

Saxo Markets’ Redmond Wong added that investors were hoping for more measures at key upcoming meetings. 

“Prevailing pessimism regarding the economy, policy efficacy, and reduced allocation to China by global and Asian equity funds persists,” he said in a commentary.

“Bargain hunters remain on the sidelines, and technical rebounds might face selling pressure until more information emerges from the Third Plenum potentially in February and the Two-session meetings in March, shedding light on the trajectory of the Chinese economy.”

The rest of Asia also rose, with Tokyo continuing its surge as exporters are boosted by the weak yen, while Sydney, Seoul, Singapore, Wellington, Taipei and Manila were also up.

The gains tracked advances in New York, where the S&P 500 clocked a second successive record and the Dow also hit a new high.

That come on the back of a renewed belief in the US economy, which continues to show resilience in the face of two-decade high interest rates, with consumer confidence rising and inflation expectations falling.

Traders had started the year on a somewhat sour note as a string of figures and warnings from Federal Reserve officials all but doused expectations rates will be cut in March and keep coming down through 2024.

“The story is changing for bulls,” said David Donabedian at CIBC Private Wealth US.

“Investor optimism had been driven by the belief there would be aggressive rate cuts by the Fed. Now investor belief has pivoted to view the economy as bullet-proof. No matter how high interest rates go, the economy will continue to glide right through.”

Investors are also gearing up for the release of corporate earnings, with market titans including Procter & Gamble, Tesla, IBM, Intel and Netflix due to report this week.

– Key figures around 0230 GMT –

Tokyo – Nikkei 225: UP 1.0 percent at 36,920.27 (break)

Hong Kong – Hang Seng Index: UP 3.2 percent at 15,436.49

Shanghai – Composite: UP 0.2 percent at 2,761.34

Dollar/yen: UP at 148.20 yen from 148.13 yen on Monday

Euro/dollar: UP at $1.0892 from $1.0885

Pound/dollar: UP at $1.2725 from $1.2708

Euro/pound: DOWN at 85.59 pence from 85.63 pence

West Texas Intermediate: DOWN 0.1 percent at $74.71 per barrel

Brent North Sea Crude: DOWN 0.1 percent at $79.97 per barrel

New York – Dow: UP 0.4 percent at 38,001.81 (close)

London – FTSE 100: UP 0.4 percent at 7,487.71 (close)