Chinese Stocks Buoyed by Rate Cut, Fed Woes Batter Asian Shares

© Reuters

By Ambar Warrick

AiVIF.com-- Chinese stocks rallied on Monday after the People’s Bank cut interest rates for a second consecutive week, while broader Asian markets slumped on growing uncertainty over the Federal Reserve’s plan for monetary policy.

China’s blue-chip Shanghai Shenzhen CSI 300 index rose 0.8%, while the Shanghai Composite index added 0.6% by 00:41 ET (04:41 GMT). 

The People’s Bank of China lowered two of its benchmark interest rates for a second consecutive week, amid faltering economic indicators this year. The move indicates that the government is likely to ramp up stimulus spending to support economic growth. 

The move is positive for Chinese stocks, in that it frees up more liquidity for local investment. The yuan fell to a near two-year low after the PBoC’s move, which also benefited export-oriented shipping and commodity stocks.

COSCO Shipping Energy Transportation Co Ltd (SS:600026) was the best performer on both Chinese indexes, surging over 10% after it gained approval for a 5 billion yuan ($730 million) note issuance. 

Expectations of more stimulus support have kept Chinese stocks upbeat in recent weeks, despite increasing signs of economic pressure from Beijing’s strict zero-COVID policy.

Most other Asian bourses fell sharply on Monday, as investors grew more uncertain over the path of the Federal Reserve’s rate hikes this year.

Australia’s ASX 200 slumped 1%, while Japan’s Nikkei 225 index fell 0.5%. India’s blue-chip Nifty 50 index dropped 1%. 

Traders are now awaiting Fed Chair Jerome Powell’s address to the Jackson Hole Symposium later this week, where the chair is expected to shed more light on a potential dovish tilt by the Fed. Expectations of a dovish Fed had sparked a week-long rally in risk assets, after data earlier this month showed U.S. inflation eased slightly in July.

But hawkish comments from a series of Fed officials quickly tempered gains, with traders now uncertain over the Fed's next move.

Expectations for the Fed’s next interest rate hike are almost evenly divided between 50 and 75 basis points. Higher U.S. interest rates are dovish for Asian markets, given that they tighten up foreign investment in the region.