Hong Kong markets largely unmoved by Bank of Japan’s policy shift to spur growth

Hang Seng Index gains 0.6pc following Tokyo decision not to raise interest rates and target government bond yields

PUBLISHED : Wednesday, 21 September, 2016, 9:30am
UPDATED : Wednesday, 21 September, 2016, 11:01pm

Hong Kong stocks advanced on Wednesday after the Bank of Japan opted to keep its short-term interest rate unchanged at minus 0.1 per cent while shifting the emphasis of its asset-purchase programme to push up yields on long-term government bonds.

The Hang Seng Index ended the day up 0.59 per cent or 139.04 points at 23,669.90, while the Hang Seng China Enterprises index advanced 1.0 per cent or 97.62 points to close at 9,849.06.

VC Brokerage director Louis Tse Ming-kwong said he was surprised by the upward movement for Hong Kong indices.

Market turnover, however, hovered just below 65 billion yuan, which Tse said was “very slim,” as investors are still closely watching the monetary policy meetings of both the Japanese central bank and the US Federal Reserve this week.

Trading volume on Wednesday was down, with 1.50 billion stocks changing hands compared with the 5-day average of 1.68 billion stocks.

The Hang Seng China Enterprises index advanced 0.63 per cent or 61.29 points at 9,812.73.

Notable movers on Wednesday included auto stocks, losing 1.19 per cent overall. Greatwall Motor slipped 2.27 per cent and Dongfeng Group fell 1.74 per cent after Credit Suisse downgraded both stocks to neutral.

Baoxin Auto Group plunged 34.67 per cent to HK$2.77, its first day of trading in three months, to its lowest level since August last year, following its announcement on Tuesday that three substantial shareholders had sold 80 million shares.

Bank stocks were higher, with Bank of China gaining 1.38 per cent to HK$3.67 after announcing that its New York branch had been authorised to be the clearing house of United States yuan business.

Big real estate players also gained, with China Overseas Land & Investment up 2.64 per cent and Henderson Land tacking on 1.31 per cent, after both launched major developments this month.

The Bank of Japan, headed by governor Haruhiko Kuroda, announced it would maintain its short-term interest rate after Hong Kong markets closed for lunch, in addition to introducing new stimulus measures, including an adjustment to its asset purchase programme to push yields on government bonds higher.

The Topix rose 2.7 per cent at the close in Tokyo, after briefly falling following the decision. The Nikkei 225 added 1.9 per cent. The yen lost 0.9 per cent against the dollar. All 33 groups in the benchmark index climbed, with a measure of lenders soaring 7 per cent for the largest gain.

“Today’s decision is a clear regime shift from base-money targeting to yield-curve targeting against The New Neutral yield curve,” said Pimco’s head of portfolio management Japan Tomoya Masanao.

He added the policy rate decision was a reflection that expanding the money supply hadn’t boosted the economy.

“Today’s policy decision is positive for risk assets short-term, but a sustainable rally is questionable.

The BOJ’s policy exhaustion is increasingly clear. Compressed risk premium should be re-priced to some extent,” Masanao said.

Tse said the central bank decision was more vital for Asian market investors in the short-term than the US Fed meeting, as it will affect the value of the yen, which fell slightly against the dollar after the BOJ announcement.

Today’s policy decision is positive for risk assets short-term, but a sustainable rally is questionable. The BOJ’s policy exhaustion is increasingly clear. Compressed risk premium should be re-priced to some extent
Tomoya Masanao, head of portfolio management Japan at Pimco

Although markets had already discounted the impact of potential interest rate changes, Tse said ideally Japan would have raised rates now rather than in December to avoid ongoing anxiety for investors.

“It would save investor worries from trucking on and on,” he said. “They don’t like uncertainty.”

Haitong International Securities sales trader Andrew Sullivan said he hadn’t expected any big moves in the Hong Kong market during Wednesday’s trading as investors would use the pending Fed rate decision as reason to stay on the sidelines.

The US Fed’s interest rate decision is expected later in the US trading day Wednesday, when policy makers are largely expected to hold off on a rate rise, according to a Reuters poll of economists.

Tse said the Fed may raise rates to avoid raising them too close to the November US presidential election, but added that he will be watching the post-announcement press conference for insight about the Fed’s longer-term policy rate movement.

“That can give a near-term picture on what the US economy is like,” he said.

On the mainland, the Shanghai Composite Index was up 0.95 per cent or 2.87 to 3,025.87 during the afternoon while the CSI 300 was up 0.28 per cent. The Shenzhen Composite Index gained 0.27 per cent while the Nasdaq-style ChiNext gained 0.71 per cent.

Additional reporting from Bloomberg