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Asia-Pacific Markets Mostly Rise as Investors Weigh China Stimulus Measures

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Asia-Pacific markets saw mixed performances on Wednesday, with Hong Kong’s Hang Seng Index extending its gains by 2.2%, driven by investor enthusiasm for China’s newly announced stimulus measures. The Hang Seng rally was supported by strong performances in the energy and basic materials sectors, with the Hang Seng Mainland Properties Index rising 3.6%.

Chinese markets have been reacting positively to the People’s Bank of China’s (PBOC) recent economic support measures. On Tuesday, the Hang Seng Index experienced its best day in seven months, while mainland China’s CSI 300 Index saw its largest one-day gain in over four years. By Wednesday, the CSI 300 continued its upward trend, rising by 1.73%.

The PBOC announced another rate cut, reducing the medium-term lending facility (MLF) rate from 2.3% to 2%. This marked the second rate cut in three months, following a previous reduction from 2.5% to 2.3% in July. In response, the offshore yuan briefly strengthened to 6.995 against the U.S. dollar, breaking the 7.00 level for the first time since May 2023.

Investors are also closely monitoring Australia’s inflation data. The country’s consumer price index rose by 2.7% year-on-year in August, in line with economists’ expectations, and easing from July’s 3.5% increase. Australia’s S&P/ASX 200 Index edged up slightly, recovering from two days of losses.

Elsewhere in the region, Japan’s Nikkei 225 rose 0.32%, while the broader Topix Index gained 0.11%, reversing earlier losses. South Korea’s Kospi was up 0.4%, with the Kosdaq rising 0.43%. South Korea also unveiled its new “Korea Value Up Index,” set to start trading next week. The index will feature 100 companies, with IT and industrial stocks making up over 40%.

In the U.S., markets also had a positive day on Tuesday. The S&P 500 gained 0.25%, closing at a record 5,732.93, while the Dow Jones Industrial Average rose 0.2%, reaching a new high of 42,208.22. The Nasdaq Composite added 0.56%, with Nvidia leading the charge, climbing nearly 4%. This came after a regulatory filing indicated that Nvidia CEO Jensen Huang had concluded his recent stock sales.

Chinese Yuan Reaches 16-Month High Against US Dollar Amid PBOC Stimulus Measures

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China’s yuan surged to its highest level in over 16 months on Wednesday, boosted by a series of stimulus measures introduced by the People’s Bank of China (PBOC) to bolster the slowing economy. The offshore yuan briefly appreciated to 6.9946 per dollar, a level not seen since May 2023. Similarly, the onshore yuan traded at 7.0319 against the greenback, marking its strongest performance since last May.

While the yuan’s rise is seen as a positive outcome of the PBOC’s policies, analysts caution that a stronger currency could hurt China’s export sector. Wei Liang Chang, FX and credit strategist at DBS, warned that policymakers must be careful not to allow the renminbi’s appreciation to weigh on the fragile economy. “Weak growth and low inflation in China should put pressure on the RMB going forward,” noted Edmund Goh, head of China fixed income at abrdn.

Ben Emons, founder of Fed Watch Advisors, added that rapid yuan strengthening could add deflationary pressure to China’s exports, which are already under strain. Unlike the U.S. dollar or Japanese yen, the Chinese yuan operates within a controlled exchange rate system. Onshore yuan trades within a 2% range around the midpoint set by the PBOC, while offshore yuan—traded mainly in Hong Kong, Singapore, and New York—faces fewer restrictions, allowing for greater market influence.

Despite the upward momentum, some experts expect the offshore yuan (USDCNH) to dip below 7.0 in the coming months. Zerlina Zeng, head of Asia Credit Strategy at CreditSights, predicts that China’s pro-growth stance and potential easing from the Federal Reserve could lead to further yuan appreciation.

Tuesday’s announcement by the PBOC included key moves such as cutting the reserve requirement ratio (RRR) by 50 basis points and lowering the 7-day repo rate by 0.2 percentage points. PBOC Governor Pan Gongsheng described these actions as necessary to alleviate the “clogged” monetary transmission channel, hindered by the property sector’s drag on bank balance sheets and a resulting “crisis” in consumer confidence.

Following the central bank’s stimulus, China’s bond market saw increased demand, with 10-year and 30-year bond yields hitting record lows. Stronger bond demand generally strengthens a country’s currency, and Chinese bonds rallied accordingly. Yields on 10-year bonds rose by 5 basis points to 2.074%, while 30-year bond yields reached 2.182%.

Chinese equities also responded favorably. The Hang Seng Index in Hong Kong posted its best performance in seven months, while the CSI 300 Index on the mainland saw its largest one-day gain in over four years.

 

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Property stocks in Hong Kong surged on Tuesday following significant announcements by Chinese financial regulators regarding measures aimed at easing the financial strain on households and bolstering the real estate sector. The People’s Bank of China (PBOC) Governor Pan Gongsheng revealed key initiatives during a press conference, including a reduction in mortgage interest rates and a lower down-payment requirement for second homes.

The PBOC’s new policy will lower the interest rates on existing mortgages by 0.5 percentage points and reduce the down-payment ratio for second homes to 15% from the previous 25%. This marks the first time that down payment requirements for first and second homes have been aligned. The central bank expects this move to ease household mortgage payments by approximately 150 billion yuan ($21.25 billion) annually.

Following the announcement, the Hang Seng Mainland Properties Index rose as much as 5%, and real estate developers like China Resources Land, Longfor Group Holdings, and China Overseas Land & Investment experienced significant gains of 4.49%, 4.57%, and 5.41%, respectively.

China’s policymakers have been increasing efforts to support the property market, which has struggled with declining investments and falling demand. However, past measures have had limited impact, with property-related investments falling by more than 10% in the first eight months of this year compared to the previous year.

Alongside the mortgage relief measures, Pan Gongsheng also announced a 50 basis point cut to the reserve requirement ratio (RRR), allowing commercial banks more liquidity to support lending. This move is part of broader efforts to stabilize the property sector and reduce household financial burdens.

While the mortgage rate cuts may alleviate financial pressure on existing homeowners, analysts are cautious about the long-term impact on the housing market. William Wu, an analyst at Daiwa Capital Markets, noted that the cuts may not stimulate new demand for homes and could slow down further reductions in loan prime rates. Bruce Pang, chief economist at JLL, emphasized the need for additional measures to support developers and stimulate property investment and construction activities.

There are also discussions underway about allowing homeowners to renegotiate their mortgage terms with lenders before January next year, potentially offering further relief to struggling households. This could include the option for homeowners to refinance with different banks, a practice that has not been allowed for several years.