bodyType

customContents

entityId

entityUuid

articlePageQuery

filter

article

articleBaseAdvertisingInfoArticle

articleListArticle

articleSeoArticle

hooksArticleAcknowledgementGateOverlayArticle

hooksTrackPageViewArticle

hooksContentInterestArticle

articleLinkingDataContent

hooksAmpRedirectArticle

articleSchemaContent

liveArticle

advertZone

sentiment

contentLock

topics

types

sections

paywallTypes

createdDate

publishedDate

sponsorType

urlAlias

moreOnThisArticles

commentCount

authorLocations

authors

corrections

displaySlideShow

multimediaEmbed

printHeadline

seriesContainer

articleSpeeches

socialHeadline

headline

images

flag

firstTopic

glossary

flattenTypeIds

image

relatedLinks

relatedNewsletters

__typename

sponsor

pdfFiles

seriesReverseOrder

series

disableOffPlatformContent

published

updatedDate

summary

subHeadline

body

keywords

readingTime

customTimezone

liveContents

SCMP Reporter

Hong Kong stocks enjoyed their biggest percentage gain this year after Wednesday's surprise interest-rate cut from the United States Federal Reserve.

Investors sent the Hang Seng Index 4.44 per cent or 576.15 points higher to 13,548.95. Turnover rocketed to HK$17.75 billion, its highest level in nearly seven months.

'This is definitely a turnaround situation,' said Core-Pacific Yamaichi Securities research head Alex Tang Yee-yuk.

Investors charged back into US equities in the early hours of overnight trading on Wednesday after the Fed announced a 50 basis point reduction in the key interest rate - the fourth reduction this year and the second intra-meeting cut.

The news jolted Wall Street on Wednesday, sending the Dow Jones Industrial Average up 3.91 per cent and the Nasdaq Stock Market up 8.12 per cent. However most Asian markets were slightly more cautious, notching up lighter gains and closing well off day highs.

Hong Kong, with its linked monetary policy, reacted with far more exuberance. With the Hong Kong Association of Banks (HKAB) expected to mirror the Fed today, banks and property stocks were high on investors' shopping lists.

HSBC Holdings climbed 4.79 per cent to HK$98.50, helping the banking sub-index up 4.16 per cent while Sun Hung Kai Properties led the property sub-index up 6.23 per cent as it climbed 6.76 per cent to HK$75.

'Liquidity conditions in the world are easing by the day so I think this is exactly the sort of turning point that we have been looking for,' said Credit Suisse First Boston chief regional strategist Stewart Paterson.

As falling rates ease the debt pressures on highly geared households and corporates in the United States, more money becomes available for investing and Asian assets will benefit from that free liquidity.

'An unintended consequence of that is that liquidity to this region improves enormously,' Mr Paterson said.

Hong Kong homeowners and corporates will also enjoy immediate debt relief when the HKAB cuts the prime rate to 7.5 per cent today, as expected.

Since the Fed's last rate cut in March, Hong Kong has enjoyed its cheapest mortgage rates for 30 years.

'We have done a greater level of business in the mortgage area over the last month,' David Eldon, chairman of both Hang Seng Bank and HSBC, said yesterday after the Hang Seng Bank annual general meeting.

'If there are further rate cuts and people say rates may not get very much lower and say now is the time to borrow to buy some property, then I think there is the potential for some stimulus of the market.'

Still, falling rates have thus far failed to re-fire the local housing market.

Moody's Investors Services senior credit officer Clara Lau blamed weak confidence on an oversupply of flats in the market and the slowing US economy.

Moody's estimates that the private sector will provide a total of 60,000 flats during this year and next year.

'Developers are also cautious considering slowing global economic growth, otherwise they would have raised prices for new projects following the rates cut. The falling interest rates are definitely good news for home seekers and affordability is at its highest level since 1988,' she said.

'But the positive effect is easily offset by the continuous job insecurity and weak domestic consumption.'

HSBC economist George Leung was similarly bearish.

'Given the existing property market's prospects, I do not think a lowering of rates will be helpful,' Mr Leung said.

He said the steep cuts in the US rates reflected the country's rapidly slowing economy, which would hurt Asia's export-dependent economies.

'Most of Asia is export oriented, so people will see the motivation behind the cuts,' he said.

Fears that Hong Kong's stagnant economy would be unable to capitalise on the interest-rate cuts in the face of the US slowdown were dismissed by Mr Tang.

'The [Hang Seng Index] trades well ahead of the economic cycle so I would not rule out the possibility of economic activity picking up in the fourth quarter this year and if that is the case, the stock market should begin to rally now,' he said.

Analysis, Page 14

Graphic: line19gbz



Blue chips surge 4.4pc as turnover tops $17b after surprise rate cut