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HK Stocks Up 3.5% on China Stimulus, Iron & Oil Gain

Hong Kong stocks rally 1.6% on China's property stimulus plan, sparking optimism in Greater China's financial markets.

By Bill Bullington

5/16, 00:30 EDT
Alibaba Group Holding Limited

Key Takeaway

  • Hong Kong stocks surged, led by a 3.5% climb in the property sector, following Beijing's property stimulus plan announcement.
  • China's broader market optimism also lifted commodities, with iron ore leading gains and WTI crude at $79.
  • Policy adjustments include a potential reserve ratio cut and measures to support Hong Kong's market against capital outflows.

Market Optimism on Policy Support

The financial markets in Greater China experienced a notable surge, particularly in the property sector, following the announcement of Beijing's latest property stimulus plan. This plan, aimed at addressing the ongoing real estate crisis, includes a proposal for local governments to buy back millions of unsold homes from developers. The optimism was palpable as Hong Kong's benchmark index rose by 1.6%, and the property sub-index climbed by 3.5%. Shares of Tencent also saw a significant jump due to an earnings beat, contrasting with Alibaba, which faced a slump due to weaker-than-expected profit numbers. This rally was not isolated to Hong Kong, as China's indexes, along with the Kospi and Taiex, also experienced gains. The US futures saw modest advances, and the US 10-year yield slipped to 4.32%. Commodities such as iron ore led the charge higher on China optimism, with WTI crude hovering around the $79 mark and gold remaining subdued at approximately $2,390.

Economic and Market Reactions

The potential government intervention to purchase unsold homes has sparked a rally in Chinese property stocks, with a 14% increase reflecting investor optimism towards government measures aimed at stabilizing the real estate sector. Despite this positive market reaction, concerns linger about the financial strain this plan could place on local governments and banks, which are already grappling with high levels of debt. The downturn in the real estate sector has significantly impacted the economy, with home sales plummeting about 47% in the first four months of the year and unsold housing inventory at an eight-year high. In response, China is considering various policy adjustments, including a potential reserve ratio cut and measures to support Hong Kong's market, to address capital outflows and liquidity issues.

Policy Adjustments and Strategic Measures

In an effort to stabilize market sentiment and address the liquidity squeeze, China is adjusting its monetary policy and financial market strategies. These adjustments include halting the sharing of real-time foreign flow data and implementing measures to enhance Hong Kong's financial market, such as a dividend tax exemption for individual investors. The People's Bank of China is expected to cut the required reserve ratio to further manage these issues, alongside efforts to prevent the yuan's further weakening. These policy shifts aim to support the economy amid the challenges posed by the real estate crisis and capital outflows, reflecting a strategic approach to navigating the current economic landscape.