Alibaba powers Hang Seng’s rebound from 14-month low as China injects US$188 billion of liquidity to boost economy

  • China’s central bank announced a cut in banks’ reserve-requirement ratio with effect from December 15, set to unleash US$188 billion of liquidity into the system
  • Alibaba Group records one of its biggest bounces since July 2020, after its US-listed securities surged overnight by the most since June 2017

Hong Kong stocks rebounded from a 14-month low after China’s central bank moved to unleash US$188 billion of liquidity into the financial system to shore up economic growth by cutting a key banking ratio.

The Hang Seng Index rose 1.5 per cent to 23,690.01 at the local noon trading break on Tuesday. The gauge slipped to the lowest level since September 2020 on Monday. The Tech Index climbed 2.2 per cent while China’s Shanghai Composite Index added 0.1 per cent.

Alibaba Group Holding rallied 9.1 per cent, the most since July 2020, while Country Garden Services gained 7.1 per cent. Sunac China surged 14 per cent, pacing gains among Chinese developers, after a top-level meeting signalled an easing of policies in the sector.

The People’s Bank of China announced late Monday a cut in the reserve requirement ratio (RRR) by 0.5 percentage point from December 15. The move will unleash some 1.2 trillion yuan (US$188 billion) of cash into the system. The Hang Seng Index rose 0.6 per cent following the first RRR cut this year in July.

“The cut in the reserve ratio will stabilise market expectations, ease concerns about an economic slowdown and the contagion risk from defaults by developers,” said Cai Fangyuan, an analyst at China Galaxy Securities. “Ample liquidity will underpin stock gains.”

The rebound also came as a technical indicator suggests the sell-off in local stocks was excessive. The Hang Seng Index’s 14-day relative strength gauge fell below 30 on Monday, a threshold that signals an oversold condition.

At the same time, Chinese authorities have expressed concerns about the state of the market. Regulators on Sunday attempted to calm the market over US delisting matters, and Premier Li Keqiang said on Monday that China has a variety of tools to stabilise growth after momentum waned over the past two quarters.

A Politburo meeting chaired by President Xi Jinping on Monday left out harsh rhetoric on the property market, a sign authorities may be moving away from their policy tightening bias. Chinese developers Longfor Group added 3.6 per cent and Country Garden Holdings rose 1.5 per cent.

“The long-term funds released are expected to help support domestic enterprises’ investment in fixed assets and local governments’ investment when market interest rate edges down,” said Zhu Chaoping, global market strategist in Shanghai at JPMorgan Asset Management. “For the property sector, the projects in construction may also receive more supports from the loosening credit condition, which is essential for stability in the bond market.”

The RRR cut is likely to boost investment sentiment and support valuation in the stock market, Zhu added.

Traders will also looking to China’s Central Economic Work Conference this month. The annual meeting convened by top policymakers to lay out the framework policies for 2022, could take place as early as this week. China will probably trim the RRR by two percentage points in 2022, according to Shenwan Hongyuan Group.

Three companies rose on their first day of trading on the Shenzhen Stock Exchanges. Guangdong Lifestrong Pharmacy surged 219 per cent from its initial public offering price. Hunan Dajiaweikang Pharmaceutical gained 98 per cent and MH Robot & Automation jumped 42 per cent.

Author: Zhang Shidong, SCMP

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