China, HK stocks extend gains as massive stimulus boosts sentiment

HONG KONG: China and Hong Kong stocks extended their gains on Wednesday, although lost some steam in the afternoon trade, as investors continue to digest a wide-ranging stimulus package announced by Beijing the previous day.

China’s blue-chip CSI300 Index jumped 1.5%, following a 4.3% rally in the prior session, while Hong Kong benchmark Hang Seng closed 0.7% higher, adding to Tuesday’s 4.1% surge.

Beijing unveiled a slate of support measures on Tuesday - the biggest since the pandemic - including rate cuts, mortgage requirement easing, and fresh funding for equity purchases, in a bid to revive activity and stabilise the crisis-hit property market, though analysts noted the absence of any policies to support real economic activity.

Following the announcement, the People’s Bank of China (PBOC) on Wednesday cut the rate of one-year medium-term lending facility (MLF) loans to some financial institutions to 2.00% from 2.30%.

Analysts and investors note sentiment has picked up strongly given the size of the stimulus and attractive valuation of Chinese stocks, but the latest stimulus is not sufficient enough to turn around China’s economy.

“Clearly this was more substantive than expectations and the market believes there could be more,” said Joshua Crabb, head of Asia-Pacific equities at Robeco.

“Valuations have been cheap so any positive surprise could have an impact. Ongoing support will drive whether this continues,” he said.

Goldman Sachs Chief China Strategist Kinger Lau China will likely remain as a “trade” until the housing issues are resolved, which is a “pain point” in the economy.

Real estate and brokerage sectors led the gains with a 2.8% and 2.1% jump, respectively.

In Hong Kong, Hang Seng Tech Index closed up merely 0.2%, after a more than 3% gain in the early trade. Mainland property stocks listed in Hong Kong edged down 0.08% at the close.

In short term, UBS expects the market could move higher given fiscal measures may be announced to improve demand between now and the ad-hoc Politburo meeting in end-October.

Meanwhile, China’s yuan rose to a fresh 16-month high on Wednesday and briefly crossed the key 7-per-dollar level offshore, underpinned by investor optimism. It finished domestic session at 7.0218 per dollar.