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James Hyerczyk
Shanghai and Hong Kong Exchanges

Asia Pacific stock markets posted a mixed performance last week with China and Hong Kong trading higher, South Korea and Australia sliding lower and Japan taking most of the week off.

Among the highlights last week, Hong Kong hit a five-month high and China followed up a strong 2019 with solid gains the first few sessions of the new year, after China’s central bank made a couple of dovish moves. Shares fell in Australia as the Australian Dollar’s strength worried the RBA. All markets were pressured on Friday after a U.S. airstrike in Iraq drove investors into safe-haven assets.

During the week-ended January 3, Japan’s Nikkei 225 Index, up 23656.62, down 181.10 or -0.76%. South Korea’s KOSPI Index finished at 2176.46, down 27.75 or -1.26% and Hong Kong Hang Seng Index closed at 28451.50, up 226.08 or +0.80%.

China’s Shanghai Index settled at 3083.79, up 78.75 or +2.62% and Australia’s S&P/ASX 200 Index finished at 6733.50, down 88.20 or -1.29%.

Hong Kong Hits 5-Month High

Hong Kong shares climbed to a five-month high last week as investors remained optimistic about the outcome of the Sino-US trade talks, as well as monetary easing on the Chinese mainland.

Investors were heartened by the progress in the trade negotiations between the world’s two largest economies as they await the signing of the first phase of a trade deal agreed on by both sides in mid-December.

The local stock market also received a boost from the People’s Bank of China’s directive to lenders to use a new market-based mechanism to set interest rates.

According to the PBOC, the central bank will use the loan prime rate (LPR) to replace the old loan-pricing system as a new benchmark for pricing existing floating-rate loans.

Analysts believe the move could help lower costs for businesses and individuals, and is also seen as an effort to loosen monetary policies and underpin economic growth.

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China Gains on Factory Data, PBOC Rate Cut

China’s official manufacturing Purchasing Managers’ Index (PMI) for December came in slightly above expectations on December 31, according to the country’s statistics bureau.

The PMI figure for December came in at 50.2, slightly above expectations of a 50.1 reading by economists in a Reuters poll.

In other news, China applied further stimulus to support the economy through a reduction to its cash reserve requirement ratio which is expected to release 800 billion yuan of liquidity.

The People’s Bank of China announced a 50 basis point cut to the RRR – the eighth such reduction since 2018 – in a move to offset the weakest growth seen in nearly 30 years. The RRR cut reduces the reserve level of big banks to 12.5 percent.

The cut was in line with expectations following Premier Li Keqiang speech in late December, according to a Reuters report, which underlined considerations for lowering financing costs of smaller companies including broad-based and targeted RRR restrictions.

Australian Share Market Ends Year with Investors Wiping Out $40 Billion in Value

While Forex traders were cheering the Australian Dollar’s breakout above the psychological 70 cents level on Tuesday, there was a bloodbath in the Australian stock market as traders swamped the Australian Stock Exchange with sell orders on the final day of the year, wiping $20 billion off the benchmark S&P/ASX 200 Index in the first fifteen minutes of trading.

Some investors acknowledged the steep drop in shares, but took it in stride. “Not a very good day, it was just indiscriminate selling, pure profit taking,” Bell Direct market analyst Jessica Amir was quoted as saying by the Sydney Morning Herald.

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