China, Hong Kong stocks rally as Yellen stays cautious on rate rise

PUBLISHED : Wednesday, 30 March, 2016, 9:19am
UPDATED : Wednesday, 30 March, 2016, 6:08pm

China and Hong Kong stocks rallied on Wednesday as commodity shares jumped following a reiteration of US Federal Reserve chair Janet Yellen’s cautious approach to future rate increases.

The Shanghai Composite Index rose 2.77 per cent, or 80.82 points, to close at 3,000.65, its largest one-day gain in a month. The CSI 300 tracking the large caps listed in Shanghai and Shenzhen rose 2.58 per cent, or 80.87 points, to 3,216.28.

The Shenzhen Composite Index advanced 3.6 per cent, or 66.26 points, to 1,906.77 while the Nasdaq style ChiNext was up 4.47 per cent, or 96.23 points, at 2,248.78.

Market sentiment got a significant boost from an array of positive news. Overnight, Yellen said in a speech at the Economic Club of New York that the US central bank would take a cautious approach to raising interest rates because of the lingering uncertainties surrounding global growth, including a slowdown in China and falling oil prices. The dovish remarks sparked a rally on Wall Street, with the S&P 500 closing at a three-month high.

“It’s entirely due to Yellen. The global market rallied ... and sentiment spilled over to the Asian markets, except for Japan because of a stronger yen,” said Hao Hong, head of research at Bocom International. “Keep in mind, the rebound did not begin today, it happened after the ‘two sessions’ [in China] around the 2,600 level.”

Angus Nicholson, an analyst at IG Group, said Yellen’s remarks drove a decline in the US dollar, as the dollar index suffered its biggest one-day loss in nearly two weeks.

“A weaker US dollar not only benefits the dollar-denominated price of many commodities, which are a key export for most emerging markets. But it also lowers the burden of US dollar-denominated debt in a range of emerging markets,” Nicholson noted.

In China, exchange filings showed late Tuesday that Wutongshu Investment Platform, a fund wholly owned by the State Administration of Foreign Exchange, bought China-listed shares of Bank of Communications and Shanghai Pudong Development Bank late last year. It was the first time the foreign exchange regulator was reported to have invested in the mainland Chinese stock market.

However, Hong said that while Yellen’s statements bode well for the mainland Chinese market, investors should stay cautious.

“Keep in mind that this is a bear market rebound and [they] tend to be more ferocious. Once it runs out of steam it will come back down,” said Hong.

In Hong Kong, the Hang Seng Index closed up 2.15 per cent, or 437.09 points, to 20,803.39, while the Hang Seng China Enterprises Index moved up 2.89 per cent, or 252.48 points, to 8,979.41.

Among shares with the largest turnover in the Hong Kong market, ICBC, Bank of China and China Construction Bank all posted gains of over 3 per cent.