Monday Sep 4 2023 13:21
7 min
Hong Kong's Hang Seng Index (HSI), made up mostly of companies from China’s mainland, surged by 462.1 points or 2.51% on Monday, closing at 18,844.2, which marked its highest level in over three weeks. The rally was sparked by Beijing announcing measures allowing major cities to reduce down payments for homebuyers and encouraging lenders to lower interest rates on existing mortgages.
Economists at investment bank Morgan Stanley recently suggested that China might implement fiscal policy easing and address high levels of local debt in the coming months.
In the United States, the stock market remained closed for Labor Day. On the preceding Friday, the country's job reports revealed a cooling labor market, creating leeway for the U.S. Federal Reserve to potentially pause its rate hikes later this month.
During the trading session, the property sector experienced a notable increase of over 4%, while the technology, consumer, and financial sectors also recorded substantial gains. Notably, Country Garden Holdings saw a significant jump of 14.6% after receiving approval from creditors over the weekend to extend a maturing yuan bond.
Other top-performing stocks included KE Holdings (20%), China Resources Land (9.7%), Semiconductor Manufacturing (9.4%), Longfor Group (8.1%), and JD.Com (4.8%).
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China's efforts to provide support and revitalization to its struggling real estate market have recently taken a notable turn through a series of monetary policy changes.
On Friday, the People's Bank of China (PBOC) unveiled a set of policy changes geared towards rejuvenating the property market. These changes include relaxing borrowing rules — such as loosening the definition of “first-time homebuyer” in all four of the country’s tier-1 cities — and reducing the reserve requirement ratio for foreign exchange deposits.
The new nationwide rule reduces the minimum down payment for first-time homebuyers to 20% and for second-time buyers to 30%. Before this change, in cities like Beijing and Shanghai, homebuyers had to find down payments of at least 30% to 40%.
The relaxation of borrowing rules is expected to simplify the process of obtaining loans for property purchases, both for individuals and businesses. By reducing financial barriers, the PBOC aims to stimulate investment in real estate, thereby increasing demand in the property sector.
Simultaneously, the reduction in the reserve requirement ratio for foreign exchange deposits is designed to free up capital that banks can allocate for lending purposes.
In addition to the PBOC's policy adjustments, several major Chinese banks such as the Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Agricultural Bank of China have taken the proactive step of lowering interest rates on yuan deposits. This is a significant move, as it directly impacts the cost of borrowing and returns on savings for individuals and businesses. Lower interest rates have the potential to stimulate borrowing, boost consumer spending, and invigorate overall economic activity.
"They send a clear signal that policymakers want to stabilise the property market, boost growth and lift sentiment," investment bank Goldman Sachs in a note cited by Reuters. "We suspect more piecemeal measures will continue to be introduced until policymakers are satisfied with the result."
“This is a key part of the additional policy easing we have been expecting,” said John Lam, head of China and Hong Kong property at UBS Investment Bank Researc, in a quote provided to CNN. “We view this policy easing as more positive and different compared to the previous ones, as a nationwide policy like this helps strengthen homebuyers’ confidence on property price outlook,” he added.
Capital Economics analysts concurred, stating on Friday that the stimulus initiatives are “finally gaining momentum”. “If [the measures] can also boost wider confidence, then it may be just enough to arrest the downward spiral in the housing market,” they wrote.
According to Marketwatch data, the Hang Seng Index has declined close to 5% year-to-date, mirroring the bleak economic outlook in China.
Despite stocks rallying after the extreme “zero Covid” measures were lifted last December, expectations for a continuous economic rebound in the PRC dimmed when the country reported a series of worrisome economic figures earlier this year. Prices declined, increasing the risk of deflation. Retail sales and industrial production also fell short of economists' forecasts, and investments in real estate decreased.
Exports, which play a crucial role in China's economy, have declined, with the most recent contraction in July coming in at 14.5% year-on-year. The Chinese currency, the renminbi, has depreciated to its lowest value in several years. Several prominent banks have revised down their predictions for China's economic growth in 2023, projecting figures below the government's target of around 5 percent.
Morgan Stanley updated its China gross domestic product (GDP) forecast on August 17, reducing it to 4.7% for this year, down from the previous estimate of 5%. The Wall Street bank also revised its 2024 GDP forecast to 4.2%, down from the earlier prediction of 4.5%. Several weeks ago, J.P.Morgan cut China’s 2023 GDP growth forecast to 4.8% from 5% earlier, while Barclays cut it to 4.5%.
The most recent official data indicates that China's economy was expanding at an annual rate of approximately 3%.
Hang Seng’s future will likely be tied to the health and recovery of the Chinese economy and will be contingent on the efficiency of the Chinese government’s stimulus plans.
As for Hang Seng predictions, economic data aggregator TradingEconomics saw the index trading at a potential mark of 17525.46 points by the end of this quarter. In a more long-term Hang Seng Index prediction, the platform’s macro models and analysts saw the index trading at 15187.26 in 12 months' time, indicating a potential decline towards late 2024.
When considering the Hang Seng Index for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.
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