Asia report: Markets mixed as China trims five-year interest rate

Asia-Pacific markets closed with a mixed performance on Tuesday as investors digested the impact of a key lending rate decision from China's central bank.

The People’s Bank of China trimmed the five-year loan prime rate (LPR), which had been expected, but the size of the cut was more than most market watchers were anticipating.

“Investor confidence has been unsettled by the Asia session, as US equity futures falter and Treasury yields increase,” said TickMill market analyst Patrick Munnelly.

“Although China has made substantial cuts to mortgage rates, the mainland stock markets continue to struggle with no signs of recovery.

“The Shanghai Composite index has struggled to make substantial gains, and the blue chip CSI300 index has dropped by.

“Furthermore, iron ore futures have seen a decline for the second consecutive session.”

Markets mixed across region

In Japan, the Nikkei 225 and the Topix both experienced a modest decline of 0.28%, closing at 38,363.61 and 2,632.30, respectively.

Leading the losses on Tokyo’s benchmark was Mitsui Engineering & Shipbuilding, down 6.93%; Rakuten, off 5.4%; and Sapporo Holdings, which lost 4.57%.

Meanwhile, Chinese markets exhibited a more positive trend, with the Shanghai Composite edging up by 0.42% to 2,922.73, while the Shenzhen Component saw a marginal increase of 0.04% to 8,905.96.

Leading the gains in Shanghai were Fujian Aonong Biological Technology Group and Everbright Jiabao, rising 10.14% and 10.11%, respectively.

Hong Kong's Hang Seng Index rose 0.57% to close at 16,247.51, led higher by WuXi AppTec, up 7.87%; ENN Energy, ahead 5%; and Alibaba Health Information Technology, which closed up 4.24%.

South Korea's Kospi, however, faced a decline of 0.84%, closing at 2,657.79, with the leading decliners including Kumho PetroChemical and Samsung C&T, which finished down a respective 4.77% and 4.75%.

In Australia, the S&P/ASX 200 experienced a slight dip of 0.08%, closing at 7,659.00, led lower by Sims, down 9.72%; and Sonic Healthcare, which closed 7.79% weaker.

New Zealand's S&P/NZX 50 also saw a minor decrease of 0.07%, closing at 11,571.22.

Leading the decliners in Wellington were KMD Brands and Ryman Healthcare, which were down 11.29% and 6.76% by the end of trading, respectively.

In currency markets, the dollar was last up 0.02% on the yen, trading at JPY 150.16, while it weakened 0.27% against the Aussie to AUD 1.5248, and by 0.34% on the Kiwi, last changing hands at NZD 1.6205.

On the oil front, Brent crude futures were last down 0.62% on ICE at $83.04 per barrel, while the NYMEX quote for West Texas Intermediate experienced a modest decline of 0.13% to $79.09.

China raises five-year interest rate more than expected

In economic news, the People's Bank of China (PBoC) tried to stimulate its property market by initiating the first cut in its benchmark five-year loan prime rate since last June.

While the one-year loan prime rate, which significantly impacts most household and corporate loans, remained stable at 3.45%, the PBoC announced a 25 basis points reduction in the benchmark five-year loan rate, lowering it to 3.95%.

The decision to slash the five-year rate for February's monthly fix surpassed market expectations, with most analysts anticipating a more conservative reduction ranging between five and 15 basis points, according to Reuters polling.

China's loan prime rates, which are recalculated monthly with input from 20 designated commercial lenders, typically align with the country's medium-term policy rate, which the PBoC opted to maintain for February.

The move did follow Beijing's recent decision to cut reserve ratio requirements for banks by 50 basis points starting from 5 February, which injected CNY 1trn (£110bn ) of long-term capital into the financial system.

“In our view, the combination of a cut to the five-year LPR today, a 25-basis point RRR cut in January, and non-moves to the one-year medium-term lending facility and LPR in recent months signals authorities' continued preference for targeted easing, and their desire to ramp up support for the property sector,” said Oxford Economics lead economist Louise Loo.

“Today's move is also consistent with how we think authorities are diagnosing China's property problem, which will drive a managed 'staircase-shaped' correction path.

“[It is] Not just about housing delivery - a late-2022 to late-2023 policy focus - but also about cleaning up the excess inventory sitting on private developer balance sheets - and possibly transferring onto the government balance sheet - through a mix of monetary and fiscal easing.”

Meanwhile, the Reserve Bank of Australia (RBA) suggested it would take “some time” for inflation to return to target levels before considering another interest rate hike, according to minutes from its board meeting earlier this month.

The minutes highlighted that “members noted that it would take some time before they could have sufficient confidence that inflation would return to target within a reasonable timeframe”.

Additionally, members deliberated over whether to raise the cash rate target by a further 25 basis points.

In its recent decision, the RBA opted to keep rates steady, with the cash rate currently at 4.35%.

Reporting by Josh White for Sharecast.com.