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An investor monitors stock prices at a brokerage in Beijing in February 2019. Photo: AP
BusinessChina Business

Alibaba’s record 12 per cent rally lifts Hang Seng from 14-month low as China injects US$188 billion of liquidity

  • China’s central bank announced a cut in banks’ reserve-requirement ratio with effect from December 15, unleashing US$188 billion of liquidity into the system
  • Alibaba Group soared 12 per cent, a record since its November 2019 listing in Hong Kong following a 10 per cent overnight gain in its US-listed securities
China stock market
Zhang Shidong
Zhang Shidongin Shanghai
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Hong Kong stocks rebounded from a 14-month low while Alibaba Group Holding surged by a record 12 per cent after China’s central bank moved to unleash US$188 billion of liquidity by cutting a key banking ratio to shore up growth.
The Hang Seng Index rallied 2.7 per cent to 23,983.66 at the close on Tuesday trading, the benchmark’s biggest one-day advance in two months. The gauge slipped to the lowest level since September 2020 on Monday. The Tech Index climbed 4.2 per cent while China’s Shanghai Composite Index added 0.2 per cent.

Alibaba Group Holding, the owner of this newspaper, soared 12 per cent in the stock’s biggest win since its secondary listing in the city in November 2019. Country Garden Services added 11 per cent while Sunac China climbed 17 per cent, pacing gains among Chinese developers, after a top-level meeting softened the policy-tightening tone on the sector.

The People’s Bank of China announced late Monday a cut in the reserve requirement ratio (RRR) by 0.5 percentage point from December 15. The move will unleash some 1.2 trillion yuan (US$188 billion) of cash into the system. The Hang Seng Index rose 0.6 per cent following the first RRR reduction this year in July.

“The cut in the reserve ratio will stabilise market expectations, ease concerns about an economic slowdown and the contagion risk from defaults by developers,” said Cai Fangyuan, an analyst at China Galaxy Securities. “Ample liquidity will underpin stock gains.”

The rebound came despite an official report showing growth in Chinese exports cooled last month. A technical indicator suggests the sell-off in local stocks was excessive. The Hang Seng Index’s 14-day relative strength gauge fell below 30 on Monday, a threshold that signals an oversold condition.

Chinese authorities have expressed concerns about the state of the market. Regulators on Sunday attempted to calm the market over US delisting matters, and Premier Li Keqiang said on Monday that China has a variety of tools to stabilise growth after momentum waned over the past two quarters.

A Politburo meeting chaired by President Xi Jinping on Monday left out harsh rhetoric on the property market, a sign that authorities may be moving away from their policy tightening bias. An industry group of developers on the Hang Seng Index advanced 1.8 per cent, with Longfor Group climbing 3.6 per cent and China Overseas Land & Investment rising 1.9 per cent.

“The long-term funds released are expected to help support domestic enterprises’ investment in fixed assets and local governments’ investment when market interest rate edges down,” said Zhu Chaoping, global market strategist in Shanghai at JPMorgan Asset Management. “For the property sector, the projects in construction may also receive more supports from the loosening credit condition, which is essential for stability in the bond market.”

The RRR cut is likely to boost investment sentiment and support valuation in the stock market, Zhu added.

Traders will also looking to China’s Central Economic Work Conference this month for more policy easing signals. The annual meeting convened by top policymakers to lay out the framework policies for 2022, could take place as early as this week. China will probably trim the RRR by two percentage points in 2022, according to Shenwan Hongyuan Group.

Three companies rose on their first day of trading on the Shenzhen Stock Exchanges. Guangdong Lifestrong Pharmacy surged 215 per cent from its initial public offering price. Hunan Dajiaweikang Pharmaceutical jumped 92 per cent and MH Robot & Automation gained 40 per cent.

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