Mainland Chinese and Hong Kong stocks jumped Tuesday as hopes for policy support from Beijing were strengthened after the People’s Bank of China injected a large dose of liquidity to ease tight conditions.
Australian stocks climbed to a fresh 14-month high, as commodity producers rallied amid concerns about supply disruptions due to labor unrest in South Africa, while Japanese stocks declined as trading resumed after Monday’s holiday.
The Shanghai Composite advanced 1.6% to 2,108.87, and Hong Kong’s Hang Seng Index rose 1.2% to 21,065.28.
Both markets had declined Monday, but rebounded strongly after the PBOC earlier Tuesday offered 265 billion yuan ($42.1 billion) in reverse repurchase agreements in an open-market operation — the second largest capital injection ever by the PBOC, according to Credit Agricole — in a bid to ease tight liquidity conditions.
“The central bank seems to be scrambling to bring money market rates down in order to support growth,” said Dariusz Kowalcyzk, a senior economist and strategist at Credit Agricole.
“Growth can be accelerated mostly via investment, and this needs funding (loans, bonds, equities), which is difficult with tight liquidity. The large open market operation shows a pro-growth policy bias and should thus be positive for market sentiment,” he added.
The gains came even as the International Monetary Fund revised down global growth forecasts for 2012 and 2013. Read full report on IMF downgrades.
Tuesday’s liquidity injection came as maturing central bank bills and bond repurchase agreements were set to drain about 160 billion yuan in liquidity this week, according to a Reuters report.
“The PBOC may continue this practise in the short-term, using reverse repos as a tool to regulate liquidity in the market,” said Ben Kwong, chief operating officer at KGI Asia.
He added that equity markets were unlikely to see a sharp fall ahead of the completion of once-in-a-decade power transition at next month’s Communist 0Party congress in China, although he didn’t believe that the gains seen Tuesday represented a turnaround for markets.
Also supporting sentiment, PBOC Gov. Zhou Xiaochuan said Tuesday monetary policy must remain flexible and set with a preemptive bias to help counter the weak external environment, according to media reports.
Financial-sector shares posted strong gains, with Industrial & Commercial Bank of China Ltd. climbing 2.2%, Bank of Communications Co. gaining 2.9% and Citic Securities Co. rising 2.6% in Hong Kong. In Shanghai, they advanced 1.6%, 2.4% and 3%, respectively.
Stock movers
Elsewhere in the region, South Korea’s Kospi slipped 0.1%, and Japan’s Nikkei Stock Average fell 1.1% as investors returned from a long holiday-extended weekend to sell out of commodity-related firms.
Australia’s S&P/ASX 200 index rose 0.5%, driven by a rally in commodity linked shares, in particular because of rising iron ore prices.
“We believe that the unprecedented level of supply disruptions in South Africa highlight the country’s difficult labor relations and deep-seated social tensions. Despite recent wage hike agreements at Lonmin and Impala, we believe that wage increases are likely to have a knock on effect in raising broader wage expectations across the mining sector,” Deutsche Bank analysts wrote in a report to clients.
Shares of iron-ore producer Fortescue Metals Group Ltd. soared 6.5%, Rio Tinto Ltd. added 1.6% and BHP Billiton Ltd. climbed 0.7%.
Oil Search Ltd. climbed 4.1% after the firm announced the sale of some of its assets located in Papua New Guinea to French oil giant Total SA . Read: Oil Search sells some PNG assets to Total.
A recovery in commodity futures also helped resource sector stocks elsewhere in the region.
PetroChina Co. jumped 3.3% and Cnooc Ltd. rose 2% as Nymex oil prices jumped back above $90 a barrel.
Shares of China Molybdenum Co. more than tripled from their initial public offering price in Shanghai, with conservative pricing amid worries over weakening Chinese appetite for commodities spurring investor demand.
The stock was trading at 9.33 yuan ($1.48) in Shanghai afternoon trade, while the company’s Hong Kong-listed shares were up 1.7% at HK$3.53 (45 U.S. cents).
In Tokyo, meantime, stocks weakened as investors got their first chance to react to Friday’s release of upbeat U.S. jobs data. The figures prompted losses for commodity firms around the Asian region on Monday as expectations for further monetary easing were scaled back.
Also pressuring local equities, U.S. stocks ended Monday’s session with losses as investors grew cautious ahead of the start of third-quarter earnings season. Read: Stocks fall with third-quarter expectations.
Ranking among movers in Japan, shares of Honda Motor Co. fell 2.1% after the auto giant was downgraded to neutral from outperform at Credit Suisse.
Sharp Corp. fell 7.3% after a weekend Nikkei report that potential investor Hon Hai Precision Industry Co. wants the firm to split its liquid-crystal-display operations, and as the stock was downgraded to sell at Goldman Sachs.
Hon Hai’s stock rose 0.8% in Taipei.
Shares of HTC Corp. tumbled by the day’s 7% limit in Taipei, after reporting downbeat quarterly results.
Marketwatch
