Hang Seng Index powers ahead to 3-month-high before Bank of England rate decision

Hong Kong stocks extended their bull run on Thursday to their highest close in nearly three months, as investors widely anticipated the Bank of England to cut interest rates for the first time since 2009 due to the economic and political fallout of Britain’s vote to leave the European Union, or Brexit.

However, Shanghai shares halted a three-day advance as metals and mining stocks pulled back significantly.

The Hang Seng Index jumped for a fourth day in a row, up 1.1 per cent, or 238.69 points, to end at 21,561.06 points, the highest settlement since April 21.

“The Bank of England is set to cut rates to 25 basis points. There is no obvious reason for the Monetary Policy Committee to delay after Governor Carney said at the end of June that ‘some monetary policy easing will likely be required over the summer’,” said Michala Marcussen, an analyst at SG Research.

The Bank of England will announce its decisions on interest rates at noon London time. Markets widely expect the central bank to cut its key interest rate further from the current record low of 0.5 per cent, a level it has maintained for more than seven years, in order to cushion the British economy from the potential impact of the Brexit shock.

Nonetheless, turnover slightly shrank to HK$63 billion from HK$69 billion on Wednesday.

Joseph Tong, chairman of Morton Securities, said many investors were still cautious, as the stock market rally lacks sufficient support from economic fundamentals.

“The oil price drop indicated investor worry about the economic outlook,” Tong said.

On Wednesday night, oil futures slid more than 4 per cent. Brent crude settled at a two-month low of US$46.26 a barrel, and West Texas Intermediate crude closed at US$44.75 a barrel.

In Hong Kong, Sino-British banking giant HSBC Holdings climbed 1.3 per cent to HK$49.30, while British lender Standard Chartered Bank pulled back slightly after recent gains, down 0.4 per cent to HK$62.15.

On the mainland, the Shanghai Composite Index slipped 0.2 per cent, or 6.67 points, to close at 3,054.02 points. The large-cap CSI300 also finished down 0.2 per cent, or 6.11 points, at 3,276.76 points.

The Shenzhen Composite Index ticked up 0.2 per cent, or 3.27 points, to 2,044.93 points, and the start-up board ChiNext Index rose 0.3 per cent, or 7.71 points, to 2,293.08 points.

Metal and coal mining stocks led losses on mainland markets. Chenzhou Jingui Silver Industry tumbled 5.1 per cent to 27.05 yuan, Jiangxi Copper lost 2.4 per cent to 16.22 yuan, gold miner Zijin Mining retreated 2.3 per cent to 3.84 yuan, coal mining giant China Shenhua Energy dropped 1.3 per cent to 14.76 yuan, and rival China Coal Energy gave up 1.2 per cent to 5.68 yuan.

Oil-related shares struggled, as Sinopec Oilfield Service fell 2.8 per cent to 4.23 yuan, Petrochina moved down 0.7 per cent to 7.36 yuan, and Sinopec traded 0.4 per cent down to 4.87 yuan.

Looking forward, analysts see limited downside for both Hong Kong and Chinese stocks in the short term.

“Since many central banks are going to introduce monetary easing policies, the downward pressure for stock markets worldwide should not be too high. The Hong Kong and mainland market should be able to trade around the current level for a while,” Tong said.

With additional reporting from Jennifer Li