Hong Kong, Shanghai Soar On China Stimulus, Strong Yen Batters Tokyo

Tokyo's Nikkei index has been battered by a stronger yen AFP

Shares in Hong Kong and mainland China rocketed Monday, extending last week's surge after Chinese authorities unveiled a raft of measures aimed at kickstarting the world's number two economy.

However, Tokyo plunged five percent in reaction to Shigeru Ishiba's election last week as the head of Japan's ruling party, which boosted expectations the Bank of Japan will continue hiking interest rates.

Shanghai piled more than eight percent higher at one point and Shenzhen more than 10 percent, while Hong Kong leapt around four percent as investors rushed back into the beaten-down markets in reaction to a series of economy-boosting stimulus out of Beijing over the past week.

Among the measures unveiled over the past week were interest rate cuts, easing of how much banks must keep in reserve and softer rules on buying a home.

And on Monday, three megacities -- Shanghai, Guangzhou and Shenzhen -- eased restrictions on buying homes, while six of China's biggest banks said they would tweak interest rates on mortgages for existing home loans following a request to lower them from the central bank.

Developers were among the best performers in Hong Kong, with Kaisa rocketing almost 60 percent at one point, Sunac jumping more than 40 percent and Agile Group 20 percent stronger.

Tech firms were also enjoying a healthy run-up, with ecommerce giant JD.com soaring more than 11 percent and rival Alibaba up almost eight percent.

The rally comes a day before Chinese markets are closed for the Golden Week holiday.

Harry Murphy Cruise, an economist at Moody's Analytics, said the moves "signal growing unease about the health of China's economy".

"That officials brought forward economic discussions to this week's Politburo meeting -- rather than sticking to the December schedule -- highlights the urgency of the problem."

The need for stimulus support was highlighted Monday by data showing China's factory activity shrank in September for the fifth successive month.

Still, Kathleen Brooks, research director at broker XTB, said: "The market is not focused on this data, as it is measuring activity before the massive stimulus package, instead, October's data will matter more for markets."

The euphoria in China and Hong Kong was in stark contrast to Tokyo, where the Nikkei plunged as the yen strengthened in the wake of Ishiba's victory.

But while Ishiba is expected to maintain many of his predecessor Fumio Kishida's policies, he has also said "there is room for raising the corporate tax", while promising to revitalise rural regions.

"Our view is that the basic economic policy philosophy will not change," said Masamichi Adachi, UBS Securities chief economist for Japan.

"More specifically, business- and market-friendly policies are likely to be maintained. Still, Ishiba is likely to pursue fiscal consolidation and monetary policy normalisation, allowing the BoJ to continue to pursue policy normalisation."

Exporters were the big losers as the yen spiked to 141.65 per dollar in reaction to Ishiba's win, which observers said would mean the central bank will likely press on with its campaign of monetary tightening. The unit had been sitting around 146.5 before Friday's vote.

Sony fell nearly three percent, Toyota lost 7.6 percent and Tokyo Electron was eight percent lower.

Elsewhere in Asia, markets were mixed, with Sydney, Bangkok and Singapore rising but Seoul, Taipei, Wellington, Mumbai, Manila and Jakarta in the red.

London fell as data showed the UK economy grew less than initially estimated in the second quarter, with Paris and Frankfurt also down.

Wall Street provided a tepid lead, even after data showed the personal consumption expenditures index -- the Federal Reserve's preferred gauge of inflation -- slowed to 2.2 percent in August, from 2.5 percent in July.

The figures boosted hopes the central bank will announce another bumper rate cut at its next meeting, having slashed them 50 basis points earlier this month -- the first reduction since the start of the pandemic.

Oil prices rose more than one percent as traders keep a close eye on events in the Middle East amid fears of a wider conflict as Israel strikes Hezbollah targets in Lebanon, Huthi rebels in Yemen and keeps up its bombardment of Gaza.

An attack on Friday killed Hezbollah leader Hassan Nasrallah and a senior Iranian general.

Iran's Foreign Minister Abbas Araghchi said on Sunday the killing "will not go unanswered".

Tokyo - Nikkei 225: DOWN 4.8 percent at 37,919.55 (close)

Hong Kong - Hang Seng Index: UP 3.4 percent at 21,339.67

Shanghai - Composite: UP 8.1 percent at 3,336.50 (close)

London - FTSE 100: DOWN 0.1 percent at 8,309.55

Dollar/yen: DOWN at 142.00 yen from 142.15 yen on Friday

Euro/dollar: DOWN at $1.1166 from $1.1169

Pound/dollar: UP at $1.3381 from $1.3375

Euro/pound: DOWN at 83.44 pence from 83.47 pence

West Texas Intermediate: UP 1.5 percent at $69.20 per barrel

Brent North Sea Crude: UP 1.6 at $73.14 per barrel