Asian Shares Surge After China Rate Cut

Stocks across Asia surged higher Monday after Beijing surprised with an interest-rate cut late last week, with Hong Kong leading the region on renewed hopes of faster growth in the region's biggest economy.

Hong Kong's benchmark index, made up mostly of mainland stocks, soared 2%, while the Shanghai Composite Index opened up 0.8%. The gains may give a much-needed boost to the trading link between the two cities that started last week but was met with tepid demand, in part due to lingering worries over China's sluggish economy.

China's cut in borrowing costs were the first in more than two years and came after a series of piecemeal easing measures that failed to encourage banks to lend and companies to borrow more. The move was announced Friday night after most Asian stock markets were closed, meaning Monday morning in Asia was the first time they had a chance to react.

"This provides confidence that [China's] growth won't fall below 7%," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors. "Some of the rally this year has been a removal of cheap valuations. The next leg of the rally will probably come from confidence that growth is not going to collapse." Chinese leaders are targeting economic growth of 7.5% this year and the Shanghai Composite is up more than 18% year to date.

Australia joined in the gains Monday, with the S&P/ASX 200 rising 1.1%. The country's miners, which send most of their commodities to China, led the way. The rally put an end to a two-week losing streak for the benchmark, placing it back in positive territory for the year.

BHP Billiton Ltd. and Rio Tinto Ltd. climbed 1.3% and 2.3%, respectively, while Fortescue Metals Group Ltd. surged 2.3%, as investors bet looser Chinese monetary policy will stimulate more demand for commodities like iron ore, used to make steel. China is Australia's biggest trading partner.

The move also sent Wall Street higher on Friday to close at fresh records while the Stoxx Europe 600 jumped more than 2%.

Elsewhere, South Korea's Kospi rose 0.9% to 1981.40 while Japan's markets were closed for a holiday.

Comments by European Central Bank President Mario Draghi that the central bank was ready to fight low inflation by expanding its asset buying also lifted markets.

Moves by Europe, Japan and now China "underlines [the] commitment of global policy makers to head of deflation and support growth," said AMP's Mr. Oliver.

The Shanghai Composite Index gained 0.3% last week while Hong Kong fell 2.7%, even as the Shanghai-Hong Kong Connect came online. The program, which allows investors in the two cities to buy each other's shares for the first time, has only a fraction of daily quotas being taken up.

Write to Chao Deng at [e-mail]

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