Hong Kong stocks cap weekly gain as China cuts key interest rate to spur growth

The Hang Seng Index climbed 3 per cent to 20,717.24 at the close on Friday, capping a 4.1 per cent gain this week. The Hang Seng Tech Index surged 4.7 per cent, while China’s Shanghai Composite Index added 1.6 per cent.

Wuxi Biologics and China Merchants Bank were the biggest gainers on the Hang Seng Index, rising at least 7 per cent. Smartphone maker Xiaomi rallied 6 per cent after strong first-quarter results.

Chinese banks cut the five-year loan prime rate (LPR), a reference for mortgage rates, to 4.45 per cent from 4.6 per cent, the most since the market-based borrowing cost was first made public in 2019, according to a statement by the People’s Bank of China. That exceeded the estimate of a 10 basis-point cut by economists tracked by Bloomberg. The one-year rate was left unchanged.

The cut has bolstered the case for more policy loosening ahead, after official data showed that China’s economic activity contracted in April. The contraction reflected the impact of lockdowns implemented to contain the pandemic on industrial output and consumer spending.

“The reduction is more than the market expected,” said Zhu Chaoping, a strategist at JPMorgan Asset Management in Shanghai. “The funding costs could decline even further, allowing debtors to save costs. More importantly, lower LPR may help boost demand in the property and land markets, which is critical to supporting local government financing. Given the persistent headwinds to growth, stronger fiscal stimulus is also expected.”