An earlier-than-expected rate cut by China boosted stocks in Hong Kong and Shanghai Monday, ahead of an annual gathering in Beijing where the government is expected to set a lower growth target for the year. The Hang Seng Index was up 0.7%, led higher by Hong Kong-listed Chinese firms, which rose 1.5%, after China’s central bank surprised markets on Saturday with its second rate cut in less than four months. The Shanghai Composite edged up 0.2%.
The cut—a quarter of a percentage point off benchmark lending and deposit rates—underscores China’s slowing domestic economy. Its government is expected to set a growth target of 7%, down from growth of 7.4% last year, at a legislative session that opens this Thursday. “[China’s market] is still undervalued,” although not as much as last year, said Shane Oliver, head of investment strategy at AMP Capital. The firm’s multiasset global fund of around $460 million plans to keep its current 6.5% weighting toward Chinese stocks, down from roughly 10% last year, he said.
Stock benchmarks from Australia to Korea were up by a fraction of a percent, while Japan’s Nikkei Stock Average was roughly flat, having gained 6.4% in the month of February. “[China’s move] might put pressure on other central banks [in Asia] to ease, depending on how the renminbi reacts,” said Mr. Oliver. China’s onshore yuan was last weaker against the U.S. dollar, which rose to 6.2733 against the yuan, up from 6.2671 late Friday in New York.
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