HONG KONG: The Hang Seng Index rose to 23,423 points at the beginning of the last week of October thanks to Beijing’s double-barreled easing move.
The Hong Kong market may rebound further to a “golden ratio” of 0.5 (that is, the size of the bounce may reach half the size of the preceding decline), as the International Monetary Fund may soon include the renminbi in the currency basket for its special drawing rights (SDR).
Also, MSCI Inc. may soon review whether to include A shares in its key Emerging Markets Index, and mainland banks and companies will release quarterly results.
The People’s Bank of China announced reductions Friday in interest rates and the reserve requirement ratio (RRR) for banks, as expected by market participants.
The PBoC has cut interest rates by 1.65 percent so far, and there is room for another 0.75 percent cut and a further 3-4 percent reduction in the RRR.
The central government intended to stabilize growth ahead of the fifth plenary session of the Communist Party’s 18th Central Committee.
However, it remains unclear how the easing measures can stimulate the real economy.
The removal of the cap on deposit rates is a big step toward liberalizing the financial market and enhances market expectations for the renminbi to be included in the SDR basket.
The Hong Kong market has undergone the usual profit-taking correction after the double-barreled easing shot, which is seen as stemming the risks of deflation or a hard landing.
These measures will boost A shares in the medium term.
