Hong Kong stocks hit 19-month high as Fed rate rise clears uncertainty

Shanghai and Shenzhen stocks also close higher after the PBOC follows the Fed and raises money market rates

PUBLISHED : Thursday, 16 March, 2017, 9:07am
UPDATED : Thursday, 16 March, 2017, 7:08pm

Hong Kong stocks jumped on Thursday to their highest close in a year and a half, after the Federal Reserve maintained its gradual approach toward tightening and increased its benchmark interest rate by 25 basis points as expected, a quarter per cent, and investors were also encouraged by the result of the Dutch elections.

The Hang Seng Index advanced 2.1 per cent or 495.43 points to close at 24,288.28, the best level since August 2015. The Hang Seng China Enterprises Index, or the H-shares index, gained 2.5 per cent or 253.63 points to 10,526.46.

Turnover jumped more than 30 per cent to HK$102.2 billion compared with the previous day.

The rally, along with gains in other regional markets, came after the Federal raised its benchmark interest rate by 25 basis points and signalled there will be two additional rises this year, within market expectations. US stocks also closed higher on Wednesday night following the Fed moves.

“The Fed’s raise of 25 basis points was fully priced in, but the market reaction is a likely response to pace of tightening and terminal rate expectations being left unchanged,” said Shaniel Ramjee, senior investment manager for Pictet Asset Management.

“We see the Fed as acknowledging the improvement of domestic growth and will wait for further confirmation of hard data to follow the uptick in survey data,” Ramjee said.

Hong Kong stocks rallied because one of the biggest uncertainties settled down after the US rate hike announcement
Linus Yip Sheung-chi, chief strategist, First Shanghai Securities

The Fed’s statement on the rate outlook has helped clear market uncertainty and ease concerns of a more hawkish stance toward policy tightening, according to some analysts.

“Investors feared that, given the Fed’s communication framework that depends more heavily on quarterly meetings, four hikes in 2017 could be a genuine possibility. The Fed threw cold water on this ‘four rises’ idea last night,” said Homin Lee, Asia Regional Economist at Lombard Odier.

Linus Yip Sheung-chi, chief strategist at First Shanghai Securities, agreed.

“Hong Kong stocks rallied because one of the biggest uncertainties settled down after the US rate hike announcement,” he said.

Hong Kong Monetary Authority, the city’s de facto central bank, also raised its base interest rate by 25 basis points. Hong Kong’s currency is pegged to the US dollar, so the city has to follow the US monetary policy.

The banking sector led the way. Banks are usually perceived as a beneficiary of rate increases, as they can charge borrowers more.

Bank of China rose 2.8 per cent to HK$4. ICBC gained 2.6 per cent to HK$5.19. Agricultural Bank of China added 2.5 per cent to HK$3.67. China Construction Bank ended up 1.9 per cent to HK$6.42.

HSBC also advanced 1 per cent to HK$64.35. Hang Seng Bank improved by 1.7 per cent to HK$160.

Energy stocks extended gains from the previous session, after international crude prices rose further. Offshore oil producer CNOOC jumped 3.6 per cent to HK$9.13. State-owned energy giant PetroChina and refiner Sinopec both gained more than 3 per cent to close at HK$5.84 and HK$5.99 respectively.

Gold miners surged on the back of rising gold futures, with Zijin Mining up 5.4 per cent to HK$3.11, and Zhaojin Mining up 4.1 per cent to HK$7.55.

Chinese online major Tencent Holdings, a Hang Seng Index heavyweight, climbed 2.9 per cent to HK$220.8, its second historic high since September.

However, Cathay Pacific Airways, Hong Kong’s flagship carrier, was the worst performing blue chip, down 2.8 per cent to HK$11.12. The airline company reported on Wednesday the first annual loss since 2008, mainly due to intense competition with mainland rivals and a strong Hong Kong dollar.

Mainland Chinese stocks also closed higher on Thursday.

In the mainland, The People’s Bank of China followed the Fed’s tightening moves and raised borrowing costs – a move regarded by markets as to stabilise the exchange rate.

The Shanghai Composite Index rose 0.8 per cent to end at 3,268.94. The CSI 300 Index was up 0.8 per cent to 3,268.94. The Shenzhen Component Index added 0.8 per cent to 10,624.42. The Nasdaq-style ChiNext rose 1 per cent to 2,046.31.

Commercial lenders gained in both Shanghai and Shenzhen markets. Shanghai-listed Bank of China added 0.6 per cent to 3.68 yuan. Wuxi Rural Commercial Bank surged 5 per cent to 14.46 yuan. Shenzhen-listed Jiangsu Zhangjiagang Rural Commercial Bank soared 10 per cent to 29.45 yuan.

Elsewhere in the region, Tokyo’s Nikkei Average closed up 0.1 per cent at 19,590.14, and Sydney’s S&P/ASX 200 finished 0.2 per cent higher at 5,785.8.