Hong Kong stocks continue to rose, buoyed by overnight gains in US equities after the Federal Reserve downshifted for a second time in its policy tightening amid slowing inflation.
The Hang Seng Index climbed 0.4 per cent to 22,162.46 at the local noon trading break. The Tech Index advanced 1.6 per cent while the Shanghai Composite Index added 0.3 per cent.
Alibaba Group gained 0.4 per cent to HK$110.40, while Tencent Holdings rose 1.5 per cent to HK$390.60. BYD surged for a third day, rising 1 per cent to near a five-month high of HK$262.60. Baidu surged 6.9 per cent to HK$154.30 while WuXi Biologics added 3.5 per cent to HK$69.40.
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The Fed raised its key rate by 25 basis points to a range of 4.5 per cent to 4.75 per cent at its first meeting of the year, following reports of smaller increases in consumer prices in recent months. It has now tempered its tightening drive, following a 50-basis point hike in December and 75 in November.
“The market reads the decision as the first sign of a possible pivot toward growth,” said Gary Ng, an economist in Hong Kong at Natixis. “It means the room for further rate hikes is limited and this will boost the investors’ risk appetite.”
Mainland investors sold HK$124 million (US$15.8 million) worth of Hong Kong-listed stocks at midday, according to data from Stock Connect. Still, the sale is a minor setback, as they have purchased about US$1.7 billion of them in the city so far this year, according to data published by Goldman Sachs.
Fed chair Jerome Powell said at a media briefing that the disinflationary process in the US had started, although he cautioned it was premature to assume the fight against inflation was over. The central bank raised its key rate by a total of 425 basis points in 2022 in the most aggressive tightening since the early 1990s.
The Hang Seng Index has rallied by about 50 per cent from its trough in late October, helping lift the city’s market capitalisation by more than US$1.5 trillion. This year’s advance of more than 10 per cent, on the back of China reopening bets, made it the best performer among global stock benchmarks.
The fed downshift comes as another major support for market bulls who have profited from a huge rally in Chinese equities since late October after China began dismantling its zero-Covid policy to shore up the faltering economy.
Relief in sight? Hong Kong raises rate at the slowest pace since May
“Economic news has already been improving in China,” economists at Goldman Sachs said in a report, after a surprisingly resilient industrial output and retail sales in December. “Markets are more focused on the speed and extent of the recovery in early 2023.”
The Hong Kong Monetary Authority immediately raised its base rate to 5 per cent from 4.75 per cent, mirroring the Fed’s increase in lockstep under its linked exchange rate system to preserve the local currency peg to the US dollar.
The S&P 500 jumped 1 per cent while the Nasdaq Composite surged 2 per cent after the Fed decision. Prices in major Asia-Pacific markets also rose on the bullish sentiment. The Nikkei 225 in Japan, Kospi Index in South Korea and the S&P ASX 200 Index in Australia increased by 0.2 per cent to 0.9 per cent.
More from South China Morning Post:
- Hong Kong stocks jump on tech rebound before Fed decision as China data signals bumpy economic recovery ahead
- Hang Seng Index could drop up to 18 per cent from Lunar New Year high as market fatigue sets in, China fund warns
- Hong Kong stocks decline as traders await more China recovery signals, while fund warns of market pullback as Fed meets
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