Hong Kong Stocks gain on Fed, PBOC's RRR cut

Headline shares of the Hong Kong financial market surged on Monday, 07 January 2019, as appetite for riskier assets renewed on tracking gains on Wall Street last Friday and gains in Mainland A-share market on Monday after soothing Federal Reserve comments and an easing of monetary policy in China. In late afternoon trades, the Hang Seng Index rose 200.23 points or 0.8% to 25,826.26. The Hang Seng China Enterprises Index added 91.86 points or 0.92% to 10,121.51.

Risk appetite got a huge boost after the People's Bank of China cut the amount of cash lenders must hold as reserves by 1 percentage point. The required reserve ratio will drop by 0.5 percentage point on January 15 and by the same amount again on January 25. The cut means 800 billion yuan (US$117 billion) will be released in liquidity, offsetting a squeeze before the Chinese New Year holiday at the beginning of February.

Sentiments were also encouraged after Federal Reserve Chairman Jerome Powell sought to ease market concerns about the risk of a slowdown, saying the central bank would be patient and flexible in policy decisions this year.

Looking ahead, investors kept their eyes on trade ties between Washington and Beijing, with delegations from both sides set to hold negotiations Monday. U.S. and Chinese officials will begin trade negotiations on Monday in the hope of reaching a deal during a 90-day truce between President Donald Trump and his counterpart Xi Jinping. U.S. President Donald Trump said on Sunday that the talks were going very well and that weakness in the Chinese economy gave Beijing a reason to work toward a deal.

Blue chips were mostly higher. HSBC (00005) gained 1% to HK$65. Tencent (00700) put on 1.7% to HK$316. HKEX (00388) jumped 1.9% to HK$231.4. China Mobile (00941) added 1% to HK$77.6. AIA (01299) dipped 0.5% to HK$63.15.

Shares of banks were mostly higher, boosted by the PBOC's decision to lower its RRR. Chinese banks are expected to benefit from the PBOC's RRR cut. CCB (00939) nudged up 0.5% to HK$6.44. CM Bank (03968) shot up 1.8% to HK$28.75. BOC (03988) edged up 0.6% to HK$3.39. ICBC (01398) inched up 0.4% to HK$5.54. BankComm (03328) gained 0.7% to HK$6.09.

Handset components markers rose in tandem with US tech stocks. Both Sunny Optical (02382) and AAC Technologies (02018) climbed 2.1% to HK$62.8 and HK$41.6. Q Technology (01478) hopped 0.7% to HK$4.38.

China Mobile climbed 1.4% after Nomura upgraded the company to buy from neutral, raising the target price from HK$79 to HK$102, citing the group is set to become a key beneficiary in the development of 5G.

Shares of New China Life plummeted 7.6% after reports that the company's chairman and president, Wan Feng, may not be re-elected and could relocate to ShinKong Insurance. A media spokesperson for the company said reports were rumours at this stage and only in March after the company meeting will it be clear whether Wan Feng will continue the position he has held since 2016. Three years is the usual amount of time for the position, the spokesperson added.

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