Hong Kong, Shanghai soar on China stimulus as strong yen hits Tokyo

HONG KONG: Shares in Hong Kong and mainland China rocketed Monday (Sep 30), extending last week's surge after Chinese authorities unveiled a raft of measures aimed at kickstarting the world's number two economy.

However, Tokyo plunged as much as 5 per cent in reaction to Shigeru Ishiba's election last week as the head of Japan's ruling party, which boosted expectations the Bank of Japan will continue hiking interest rates.

Shanghai jumped more than 8 per cent - its best day since 2008 - and Shenzhen more than 10 per cent, while Hong Kong briefly leapt around 4 per cent.

Investors have been rushing back into the beaten-down markets in reaction to a series of economy-boosting stimulus out of Beijing over the past week.

Among the measures unveiled were interest rate cuts, easing how much banks must keep in reserve and softer rules on buying homes.

And on Monday, three megacities - Shanghai, Guangzhou and Shenzhen - eased restrictions on buying homes, while six of China's biggest banks said they would tweak interest rates on mortgages for existing home loans following a request to lower them from the central bank.

Developers were among the best performers in Hong Kong, with Kaisa rocketing more than 80 per cent, Sunac jumping more than 55 per cent and Agile Group 19 per cent stronger.

Tech firms were also enjoying a healthy run-up, with ecommerce giant JD.com soaring more than 11 per cent and rival Alibaba up almost 8 per cent.

The rally - which has seen Shanghai rise more than 20 per cent in the past six trading days - comes a day before Chinese markets are closed for the Golden Week holiday.

Harry Murphy Cruise, an economist at Moody's Analytics, said the moves "signal growing unease about the health of China's economy".

"That officials brought forward economic discussions to this week's Politburo meeting-- rather than sticking to the December schedule - highlights the urgency of the problem."

The need for stimulus support was highlighted Monday by data showing China's factory activity shrank in September for the fifth successive month.

Still, Kathleen Brooks, research director at broker XTB, said: "The market is not focused on this data, as it is measuring activity before the massive stimulus package, instead, October's data will matter more for markets."

The euphoria in China and Hong Kong was in stark contrast to Tokyo, where the Nikkei plunged as the yen strengthened in the wake of Ishiba's victory.

But while Ishiba is expected to maintain many of his predecessor Fumio Kishida's policies, he has also said "there is room for raising the corporate tax", while promising to revitalise rural regions.

"Our view is that the basic economic policy philosophy will not change," said Masamichi Adachi, UBS Securities chief economist for Japan.

Exporters were the big losers as the yen spiked to 141.65 per dollar in reaction to Ishiba's win, which observers said would mean the central bank will likely press on with its monetary tightening campaign. The unit had been sitting around 146.50 before Friday's vote.

Sony fell nearly 3 per cent, Toyota lost 7.6 per cent and Tokyo Electron was eight percent lower.

Markets were mixed elsewhere in Asia, with Sydney, Bangkok and Singapore rising but Seoul, Taipei, Wellington, Mumbai, Manila and Jakarta in the red.

London fell as data showed the UK economy grew less than initially estimated in the second quarter, with Paris and Frankfurt also down.

Wall Street provided a tepid lead, even after data showed the personal consumption expenditures index - the Federal Reserve's preferred gauge of inflation - slowed to 2.2 per cent in August, from 2.5 per cent in July.

The figures boosted hopes the central bank will announce another bumper rate cut at its next meeting, having slashed them 50 basis points earlier this month - the first reduction since the start of the pandemic.

Oil prices rose more than 1 per cent as traders keep a close eye on events in the Middle East amid fears of a wider conflict as Israel strikes Hezbollah targets in Lebanon, Houthi rebels in Yemen and keeps up its bombardment of Gaza.

An attack on Friday killed Hezbollah leader Hassan Nasrallah and a senior Iranian general.

Iran's Foreign Minister Abbas Araghchi said on Sunday the killing "will not go unanswered".