News of telecoms sector reforms and stimulus measures from the Chinese Central Bank in Beijing caused shares in China and Hong Kong to rally on Monday trading. The Shanghai Composite Index rallied 3.3% while the Hang Seng index rallied 1.3% on strong showing from Chinese companies listed on the exchange.
The People’s Bank of China announced an expansion of a program that would expand the scope of lending capacity of Chinese banks. The measures already in place in two of China’s largest cities, allows banks to use assets to secure credit from the central bank. The plan is now to be expanded to Beijing, Shanghai and 7 other provinces.
Clearly, this has been viewed by investors as a form of quantitative easing and they have responded accordingly. Further impetus was added to the markets on news that the largest IPO listing in Hong Kong by a Chinese firm, China Reinsurance (Group) Corp, was in the offing.
Other Asian markets did not share in the market enthusiasm in China and Hong Kong, with the S&P ASX 200 down 0.8%. The Nikkei was closed as a result of a holiday.
There may still be more on the stimulus package from the Peoples’ Bank of China, as Chinese export data is due on Tuesday. Experts are generally not bullish on the data and Nomura actually projects an 8% fall in Chinese exports for September when compared with the same data from September 2014. The previous results for the month of August showed a 6.1% decline year on year. If the data are weak, more stimulus measures may be released by the Chinese authorities, and this could spur a rise in the local stock markets.
In other news, the Federal Reserve Board is being urged not to keep traders in suspense and to go ahead with the much expected interest rate increase. This is coming out of statements credited to top finance officials present at the annual IMF/World Bank meetings in Lima, Peru. Many officials are worried about the delay in the Fed’s rate increase and the uncertainty it is causing in the financial markets. The rate increase has been widely expected to occur in September or at the very latest, by the December meeting of the FOMC. If the Fed follows through with this, investment money will shift away from the emerging markets and back to the US, which would stretch the already weakened economies of Latin America. WTI crude oil has come off intraday highs of just above $50 a barrel to trading at around $47.79 as at the time of writing this report.
In other news, Glencore shares have been suspended from trading in Hong Kong as authorities await information on the extent of its operations in Australia and Chile. This is coming on the back of news that the company, which has been hard hit by falling commodity prices, announced it was putting up two of its mines on sale. The firm has actively shuttered operations produce a lot of its commodity products. Energy shares across the globe have generally been in negative territory, dragged down by weak oil prices. Chevron Corp. shares declined 1.3%, while Exxon Mobil Corp. fell 0.6%.
Most investors seem to be looking towards corporate earnings as the earnings release season for Q3 kicks off in full swing. Gordon Charlop, managing director at Rosenblatt Securities is of the opinion that “investors will be zeroing in on how companies have been affected by a strong U.S. dollar and low oil prices”. The third-quarter earnings season continues this week with Bank of America Corp., J.P. Morgan Chase & Co, Wells Fargo & Co., Citigroup Inc. and Goldman Sachs Group Inc. Scheduled to report their earnings this week.
Finally, a review of performance of stocks of mining companies, energy companies and auto makers in Europe show that they have experienced a slight recovery in October after sharp drops in those sectors were seen in August due to falling commodity prices, the China slowdown and the Volkswagen AG emissions scandal.