ASIA MARKETS: Asian Stocks Poised For Best Month Since 2009 After China Rate Cut

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Stocks rise on signs other central banks may ease

Asian shares are on track for their best month since 2009, after Chinese officials unleashed more growth measures and kicked off a meeting at which they will lay out their five-year economic plan.

Japan’s Nikkei Stock Average gained 0.8%, while Chinese firms led Hong Kong’s Hang Seng Index up 0.2%.

The Shanghai Composite Index was up 0.7%, bringing its gains from the bottom of its summer selloff on Aug. 26 to roughly 15%.

Australia’s S&P/ASX 200 and South Korea’s Kospi gave up earlier gains to trade roughly flat.

Still, shares in most of the region are now at their highest levels since August and the MSCI Asia Pacific Index is on track for its best month since April 2009, up 8.9% month-to-date through Friday’s close in local-currency terms.

The gains Monday come after China’s central bank combined a quarter-point cut in benchmark interest rates (http:// www.marketwatch.com/story/china-cuts-key-interest-rates-reserve-ratio-2015-10-23) with a half-percentage reduction in banks’ reserve-requirement ratio, all in a bid to lower corporate financing costs and pump liquidity into the economy. The bank announced the measures late Friday.

Financial shares led Chinese firms in Hong Kong higher, with Haitong Securities Co. (600837.SH) and Citic Securities Co. (600837.SH) both up more than 3%.

“People expect trading volumes to be up in the short term and margin lending has gone up in recent weeks,” benefiting brokerages, said Hao Hong, managing director at Bank of Communications Co. Still, “longer term, fundamentals are pretty bleak,” diminishing the prospects of a sustained rally.

Several big state-owned banks were down, including Agricultural Bank of China Ltd. (601288.SH) and Bank of China Ltd. (3988.HK) , both falling more than 0.5%. Along with the moves to ease rates, China removed caps on deposit rates, which could destabilize the banking sector.

Still, the People’s Bank of China said it would continue to manage these rates, as officials seek to control lending risks and put a lid on borrowing costs. Most of banks’ funding liabilities are already largely based on market pricing and an improvement of interbank liquidity from the easing measures would lower banks’ financing costs, Goldman Sachs said in a note.

China’s recent rate cuts haven’t always produced a pop in equities immediately after their announcements. The Shanghai benchmark fell in the single trading session after three of the last four rate cuts before Friday’s.

But the Shanghai Composite Index is up 17% since June, when the People’s Bank of China began to simultaneously lower interest rates and banks’ reserve requirements. The central bank also made a similar combination move in late August.

The benchmark has gained 38% since China’s central bank embarked on its latest easing cycle last November.

Daily trading volumes for A shares, or yuan-denominated domestic stocks, were up at above more than 1 trillion yuan ($ 157.3 billion) on Friday, compared with a recent 370.7 billion yuan low on Sept. 30. They remain down 58% from a record on 2.3 trillion yuan reached on May 28, just before stocks sold off during the summer.

Margin loans rose to more than 1 trillion yuan last week, up as much as 11% from a recent low of 906.7 billion yuan on Sept. 30. Loans are still down 56% from a record 2.3 trillion yuan in June. Borrowing to buy shares magnified gains during a yearlong rally through June and losses when investors rushed to cover their positions.

A four-day meeting of China’sCommunist Party kicks off Monday, during which leaders are expected to approve an economic blueprint for scaling back the role of the state over the next five years (http://www.marketwatch.com/story/ chinas-leaders-to-map-out-5-year-reform-plan-2015-10-25). The leadership is also expected to offer clues about its appetite for bold reform in the face of slowing growth.

Shares in Asia have been rallying since the summer on bets of easy money policies from global central banks and are already back to levels they reached before China’s devaluation of its currency sparked a global selloff in August. On Thursday, European Central Bank chief Mario Draghi signaled the ECB could do more to stoke growth and inflation in the eurozone as early as December, sending stocks higher around the world.

Meanwhile, patchy U.S. economic data has deferred expectations for a rise in interest rates for the rest of 2015. Grim industrial production and export data in Japan have lifted hopes its central bank will introduce more stimulus measures at its policy meeting this week.

China’s cut to interest rates is the sixth such measure since last November, while its cut to reserve requirement ratios was the fourth such move this year. The easing came after China reported that its third-quarter growth slowed to 6.9% year over year, marking the slowest rate of expansion since the beginning of 2009.

On Friday, the S&P 500 rallied back into positive territory for the year, spurred by upbeat earnings.

Yields on Chinese government bonds fell, with returns on five-year bonds below 2.9%, the lowest in three years. Returns on 10-year bonds were down to 3.07%, the lowest since 2009.

The Australian dollar soared to as high as $0.7296 late Friday immediately following China’s announcement. It was last up 0.6% in early Asia trade at $0.7255.

The U.S. dollar was last down 0.3% against the Japanese yen at Yen121.04. Still, it reached as high as Yen121.51 earlier Monday, marking its strongest level against the Japanese currency since late August.

Gold’s price was up 0.2% at $1164.90 a troy ounce.

Brent crude oil was up 0.3% to $48.12 a barrel.

Markets in New Zealand are closed for Labor Day holiday.

 

 

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