Hong Kong stocks rebound after regulator pledges credit support to revive domestic demand with deposit rate cuts supporting lower loan rate hopes

Hong Kong stocks gained as investor sentiment rose following assuring comments from China's finance regulators that measures are planned to spur economic activity even as prospects of a reduction in borrowing costs were sparked by a cut in deposit rates by the nation's major banks.

The Hang Seng Index gained 0.3 per cent to 19,299.18 at closing of trade on Thursday, recovering from a slump of as much as 0.7 per cent earlier in the day. The Tech Index slipped 0.7 per cent, while the Shanghai Composite Index was gained 0.8 per cent.

Insurers AIA and Ping An led gains, adding 1.7 per cent to HK$81.30 and 1.1 per cent to HK$53.40 respectively. Food delivery service provider Meituan added 0.7 per cent to HK$124.40.

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Limiting gains, Baidu dropped 1.4 per cent to HK$130.60, Alibaba retreated 0.8 per cent to HK$83.35, while Tencent lost 0.2 per cent to HK$334.80.

A pedestrian passes by the electronic screen of the Hong Kong stock exchange in Hong Kong. Photo: AP alt=A pedestrian passes by the electronic screen of the Hong Kong stock exchange in Hong Kong. Photo: AP>

The market recovered after comments from the head of the National Financial Regulatory Administration (NFRA), China's supervisory body for the banking and insurance sector, at the Lujiazui Forum in Shanghai on Thursday. The regulator said it will spur banks to increase their credit support to revive domestic demand, especially in so-called green consumer finance.

"The NFRA speech only reaffirms the existing policy direction," said Gary Ng, senior economist at Natixis, "The market may still relate it to the earlier deposit rate cuts and expect more policy stimulus."

Other investment banks have echoed similar views in recent reports.

Cheap valuation, stronger earnings growth and policy support will provide more upside for Chinese equities, according to JP Morgan Private Bank's midyear outlook report to clients.

China's "soft patch" in domestic demand and export weakness should help make a stronger case for more policy support to come from Beijing, strategists at Bank of America said in a report on Thursday.

Trip.com jumped 5.1 per cent to HK$282.40, its highest level since April 24, after the online travel company released strong revenues and earnings for the first quarter of the year.

The company continues to gain market share, outpacing the travel market and economic growth on rising income levels and increased urbanisation, said research strategists at Jefferies in a report on Thursday.

Meanwhile, China's state banks cut deposit rates in attempts to bolster the economy, making it the second cut in less than a year. Demand deposit rates were cut by 5 basis points while three-year and five-year time deposit rates were cut by 15 basis points by Agricultural Bank of China, Industrial and Commercial Bank of China and Bank of China.

"The latest deposit rate cut should ease NIM [net interest margin] pressure, and help maintain reasonable profitability for the banks. Amid a weakening post-pandemic recovery in recent months, we also believe the likelihood of a potential lending rate cut by PBOC [People's Bank of China]has risen," said Nomura analysts Shengbo Tang and Hannah Han in a report.

Broadly, the deposit rate cut had a positive impact on banking stocks. Agricultural Bank of China gained 2.3 per cent to HK$3.12, ICBC gained 0.9 per cent to HK$4.34 and Bank of China added 0.3 per cent to HK$3.17.

Industrial equipment manufacturer Zhejiang Shuangyuan Technology company which debuted on the Shanghai exchange, saw its stock plunge 18.7 per cent from its IPO price to 102.39 yuan.

Other major Asian markets traded lower, deterred by the prospects of higher US interest rates. Japan's Nikkei 225 slumped 0.9 per cent, while South Korea's Kospi fell 0.2 per cent and Australia's S&P/ASX 200 dropped 0.3 per cent.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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