China’s stocks rallied the most in two weeks, led by financial and technology companies, after the central bank cut interest rates for the third time in six months to support the economy.
China Citic Bank Corp., China Life Insurance Co. and Poly Real Estate Group Co. climbed at least 1.9 percent. The People’s Bank of China said it will reduce the one-year lending rate 0.25 percentage point to 5.1 percent and cut the one-year deposit rate by the same amount to 2.25 percent. Technology and power companies also jumped, with Dr. Peng Telecom & Media Group Co. and GD Power Development Co. increasing at least 4.8 percent.
The Shanghai Composite Index advanced 3 percent to 4,333.58 at the close. The latest monetary policy loosening comes after export and inflation data signaled weakening demand and the benchmark gauge posted its steepest weekly loss in five years. The measure has advanced on the first trading day following the last two reductions in borrowing costs, adding 0.8 percent on March 2 and 1.9 percent on Nov. 24.
“The A-share market is very policy sensitive and this type of announcement tends to have a double effect -- the actual effect of the interest-rate cut by itself as well as the signaling effect,” said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai, the second-largest listed Chinese brokerage. Policymakers still have “considerable room for policy easing and stimulus,” he said.
Hong Kong’s Hang Seng China Enterprises Index advanced 1.2 percent at 3:11 p.m., while the Hang Seng Index added 0.8 percent. The CSI 300 Index increased 2.9 percent, while the ChiNext index in Shenzhen surged 5.8 percent to a record.
China Construction Bank Corp. paced gains for lenders, rising 0.7 percent. China Vanke Co. climbed 2 percent. Gemdale Corp. surged 4 percent. China’s rate cut will boost property sales, according to China International Capital Corp. Lower rates will cut monthly mortgage repayments and further support a sales recovery in May and June, CICC analysts led by Eric Yu Zhang wrote in a note.
Gauges of technology and utility stocks in the CSI 300 increased at least 4.1 percent for the steepest gains among 10 industry groups. IFlytek Co. jumped 7.3 percent in Shenzhen for a two-day, 17 percent rally. Hubei Energy Group Co. surged 10 percent after its board approved a plan to raise as much as 6.06 billion yuan ($980 million) in a private share placement.
The Shanghai Composite has rallied 111 percent over the past year amid speculation the government will take more measures to achieve its growth target of 7 percent this year. It’s valued at 16.5 times 12-month projected earnings, compared with the five-year average of 10.2. Trading volumes were 14 percent below the 30-day average.
The Shanghai gauge plunged 5.3 percent last week amid concerns about new share sales, margin-trading growth and weak economic data. Friday’s data showed exports unexpectedly fell 6.2 percent in April, while a Saturday report showed consumer prices missed estimates and producer prices extended a record stretch of declines. Reports on retail sales, industrial production and fixed-asset investment are due Wednesday.
Interest-rate cuts in China are failing to keep pace with the slide in goods prices at the factory gate, bolstering the case for further monetary easing to support manufacturers. While the central bank lowered its benchmark one-year benchmark lending rate by 90 basis points in the past six months to 5.1 percent, producer-price declines quickened to 4.6 percent in April from 2.2 percent in October, official data show. The gap between the two rates has held close to 10 percentage points all year, the highest since 2009.
China’s bull market still has long way to go, underpinned by more rate cuts to come and investors’ confidence in the country’s economic transformation, Fortune SG Fund Management Co. chief strategist Joe Zhou said in an interview on May 6.
— With assistance by Kyoungwha Kim