Hong Kong Stocks gain 2% on China stimulus boosts

Headline shares of the Hong Kong financial market spurted on Tuesday, 15 January 2019, as investors' sentiments bolstered after China signalled more stimulus measures to soften the blow from an ongoing tariff war with the United States. At closing bell, the Hang Seng Index surged 531.96 points or 2.02% to 26,830.29. The Hang Seng China Enterprises Index spurted 210.18 points or 2.04% to 10,502.62. Turnover increased to HK$88.96 billion from HK$73.4 billion on Monday.

Risk appetite buying in the City market today bolstered after senior economic leaders, briefing reporters Tuesday on the outcome of an annual policy-setting meeting last month, pledged to keep the monetary policy of the world's No. 2 economy flexible but stable and to support growth with improved access to financing for private and smaller enterprises. The assurances came as China weathers its worst slowdown since the global financial crisis amid a punishing tariffs dispute with the U.S.

The China's National Development and Reform Commission said in a statement that China will strengthen monitoring of its economic situation and improve its "reserve" of economic policies. The stimulus measures include a cut to value added tax rates for selected industries and provide tax rebates for others, helping to soothe fears about a slowdown in China and its implications for global growth. The stimulus from the China's spurred a positive movement in most of the markets, following an unexpected fall in China's December exports and imports.

The PBOC has slashed RRR five times over the course of a year to keep liquidity from tightening too much as the economy slows. Twin cuts announced this month were the largest so far. The PBOC announced earlier this month that it was cutting the ratio of cash that banks must hold as reserves by 100 basis points (bps), with the first stage of 50 bps reduction effective on Tuesday.

China's government is turning increasingly to tax cuts as the first line of defence against a slowing economy, in a departure from the wasteful infrastructure binges of the past. Further evidence of the shift emerged Tuesday, as senior policy officials pledged that tax reductions on a larger scale are in the pipeline, amid worsening economic data. JPMorgan Chase economists estimate the total impact will be around 2 trillion yuan (US$300 billion), or 1.2% of gross domestic product. Last May the government cut value added taxes for manufacturing, transportation, construction, telecommunications and farm produce industries, followed by a cut in personal income taxes and the introduction of more deductions. Earlier this month, the State Council announced a US$29-billion annual tax cut plan for small companies.

The stimulus from the China's spurred a positive movement in most of the markets, following an unexpected fall in China's December exports and imports. Senior Chinese economic policy officials vowed to increase tax cuts to boost growth, while lending data from the country suggested December estimates may be exceeded.

China's exports to the world fell 4.4% in December from a year earlier, the biggest monthly drop in two years, pointing to further weakening in the world's second-largest economy. Imports also unexpectedly contracted, falling 7.6%, the biggest decline since July 2016. China's global trade volume rose last year but its surplus with the world fell 16.2% to $351.76 billion in 2018, as imports rose 15.8% while exports gained 9.9%.

Chinese automakers were higher on speculations of EV subsidies cut & likely vehicle purchase tax cut in China. Great Wall Motor (02333) climbed 3% to HK$4.99. BYD Company (01211) rose 3% to HK$45.95. Brilliance China Automotive (01114) advanced 1% to HK$6.57.

Oil majors were higher as oil prices rebounded after a 2% slide overnight. Sinopec (00386) rebounded 1% to HK$6.11. CNOOC (00883) climbed 4% to HK$12.72. PetroChina (00857) put on 2% to HK$5.01.

Shares of smartphone producers were also higher. AAC Technologies (02018) jumped 5.1% to HK$48. BYD Electronics (00285) mounted 3% to HK$9.23. Q Technology (01478) added 2% to HK$4.51. Trio Industrial Electronics (01710) jumped 3% to HK$0.285.

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