Chinese stock-index futures rallied after the central bank cut interest rates for the first time in more than two years to bolster the economy. Exchange-traded funds surged in U.S. trading.
Futures on the Hang Seng China Enterprises Index of mainland companies traded in Hong Kong rose 3.3% to 10,800 at 9:49 a.m. in New York, while contracts on the Hang Seng Index expiring this month added 2.2%. Deutsche Bank AG’s X-trackers Harvest CSI 300 China A-Shares ETF jumped 5.1% to a record and the iShares China Large-Cap ETF soared the most in a year.
China reduced benchmark interest rates for the first time since July 2012, stepping up efforts to support the world’s second-largest economy after industrial production and retail sales figures showed the slowdown deepened last month. The Hang Seng China Enterprises index has slipped 3.4% this year, while the Shanghai Composite Index of mainland-traded shares has increased 18%.
“The interest-rate cut and the timing of the announcement was a surprise,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “China had to take action to reach its growth target.”
The one-year deposit rate was lowered by 0.25 percentage point to 2.75%, while the one-year lending rate was reduced by 0.4 percentage point to 5.6%, effective tomorrow, the People’s Bank of China said on its website. The cut follows liquidity injections and targeted reductions to reserve requirements. Although the PBOC scrapped controls on most borrowing costs in July 2013, banks still use benchmark rates as a guide for loans such as mortgages.
The PBOC was said to have added money to the banking system today as a cash shortage stemming from new share sales drove the benchmark money-market rate up by the most since July. On Nov. 6, the monetary authority confirmed it pumped 769.5 billion yuan ($126 billion) into the country’s lenders via a new tool called the Medium-term Lending Facility.
The yuan weakened 0.1% to 6.1334 per dollar in offshore trading.
The rate cut is a “timely and necessary move,” Jonathan Bell, the London-based head of emerging market equities at Nomura Asset Management, which oversees $307 billion globally, said in an e-mail. “This should be positive for broader markets as the PBOC is responding to the reality of the economy.”
Factory production rose 7.7% from a year earlier in October, the second weakest pace since 2009, while investment in fixed assets such as machinery expanded the least since 2001 from January through October. Retail sales gains also trailed economists’ forecasts.
“This means that downside risks to growth are lower,” Jan Dehn, the head of research at Ashmore Group Plc, which oversees $71.3 billion, wrote in an e-mail today. “This is bullish for equities.”