Shanghai exchange springs higher on expected China rate cuts

The Shanghai stock market bucked the global trend and closed strongly higher yesterday in anticipation of further interest rate cuts by the People's Bank of China.

Mainland companies listed in Hong Kong also rose in otherwise subdued Asian market trading.

In a Chinese equivalent of "don't fight the Fed" - a reference to investors who bet against US Federal Reserve monetary policy and lost - the benchmark Shanghai Composite Index rose 3.11 per cent, its biggest jump in 14 months, as investors wagered that the mainland central bank will extend its recent interest rate cut.

The PBOC cut the key lending rate on November 21 by 40 basis points shortly before the release of manufacturing data that suggested the economy was slowing.

As a result, "people are now expecting a more aggressive move from the PBOC," as the government tried to keep economic growth on target, said Haitong International Securities economist Alexis Garatti.

Garatti predicts a further cut of 25 basis points this year and an additional three to four "broad and brutal" 25-basis-points reductions next year.