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Hong Kong stocks surge on rate cut prospects; mixed performance in China

June 3, 2024

Key points:

  • Hang Seng Index gains 2.32%, marking its best day since May 2.
  • ECB expected to cut rates by 0.25%, influencing regional market sentiment.

On Monday, Hong Kong’s stock market experienced an observable surge, with the benchmark Hang Seng Index posting its best daily performance in a month. This optimism was largely driven by the anticipated rate cut from the European Central Bank (ECB), which is expected to trim rates by a quarter point to 3.75% on Thursday.

Chart displaying the Hang Seng Index (HSI) performance, which climbed 2.32% to 18,498.33 points at midday, reflecting investor optimism. The chart highlights a positive trend with moving averages and MACD indicators, supporting improved sentiment in regional markets, as observed in the article discussing Hong Kong stocks' surge on rate cut prospects and mixed performance in China. Hosted at VT Markets, a forex CFDs brokerage.

SEE: HK50 sees significant uptick on the VT Markets app.

This move would mark the first time the ECB has eased ahead of the U.S. Federal Reserve.

At the midday break, the Hang Seng Index (HSI) climbed 2.32% to 18,498.33 points, while Chinese H-shares listed in Hong Kong (HSCEI) increased by 2.69% to 6,564.54 points. This strong performance is, generally speaking, a positive signal for investors, reflecting improved sentiment across regional markets.

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Mixed performance in China despite strong data

In contrast, mainland China shares exhibited a mixed performance despite promising manufacturing data. A private survey indicated that manufacturing activity in May grew at the fastest pace in nearly two years, supported by robust production and new orders.

However, this upbeat data did not translate into gains for all Chinese indices.

The Shanghai Composite Index (000001) fell by 0.51% to 3,071.02 points, and the blue-chip CSI300 Index (399300) saw a slight decline of 0.14% to 3,575.05 points.

The smaller Shenzhen Index (399106) dropped by 0.83%, while the start-up board ChiNext Composite Index (399006) managed a modest rise of 0.25%. Additionally, the tech-focused STAR50 Index (.STAR50) in Shanghai was up 0.59%.

Regional markets reflect optimism

Regionally, the MSCI’s Asia ex-Japan stock index (.MIAPJ0000PUS) gained 2.01%, and Japan’s Nikkei Index (NI225) rose by 1.22%. This broad-based regional strength is reflective of the positive spillover effects of the anticipated ECB rate cut, as investors look for favourable monetary policies to boost economic activity.

Despite the overall upbeat sentiment, the Chinese yuan (USDCNY) weakened slightly, quoted at 7.2455 per U.S. dollar, down 0.04% from the previous close of 7.2425. This minor depreciation of the yuan might indicate cautiousness among traders regarding future economic prospects.

Chart illustrating the performance of USD/CNH, showing the Chinese yuan weakening slightly to 7.2455 per U.S. dollar, down 0.04% from the previous close of 7.2425. The chart features moving averages and MACD indicators, highlighting cautious sentiment among traders despite an overall positive market outlook. Hosted at VT Markets, a forex CFDs brokerage

SEE: USD gains ground today against the offshore yuan, CNH on the VT Markets app.

Rate cuts by major central banks have historically had a profound impact on global markets. For example, the ECB’s rate cuts during the Eurozone debt crisis in the early 2010s provided much-needed liquidity and confidence to financial markets.

Looking ahead, while the anticipated ECB rate cut is a positive development, investors should remain cautious. The mixed performance of Chinese shares despite strong manufacturing data suggests underlying uncertainties.

Therefore, a prudent approach, focusing on diversified investments and closely monitoring central bank policies, will be essential for navigating the market landscape in the coming days.

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