Hong Kong stocks rise on speculation about mortgage-rate cuts in China

Hong Kong stocks jumped for a second day to a one-week high as mainland developers rallied on speculation about mortgage-rate cuts.

The Hang Seng Index added 1 per cent to 17,408.38 at the noon trading break, adding to a 0.8 per cent gain on Thursday. The Tech Index gained 0.7 per cent while the Shanghai Composite Index was little changed, hovering around an eight-month low.

Food delivery platform Meituan added 1.7 per cent to HK$124.40, smartphone maker Xiaomi added 2 per cent to HK$19.30 and insurer Ping An jumped 1.7 per cent to HK$35.45, leading gains among index heavyweights. Longfor added 4.4 per cent to HK$8.13 while peer China Resources Land rallied 2.5 per cent to HK$19.88, leading a 2.4 per cent gain among mainland developers.

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China could cut rates on outstanding mortgages by up to 50 basis points as early as this month to lower borrowing costs and spur consumption, Bloomberg reported on Friday, citing unnamed sources. That followed comments from the country's central bank chief last month that it would press forward with supportive monetary policy in pursuit of an economic recovery.

Sentiment received another boost after Bank of America backed China's equity markets, saying yields are attractive again after a pullback. The downside is limited, it said, and their low correlation with the US market could provide a place to shelter from market risks.

"We believe China's market could be a defensive hedge amid the current market uncertainty", strategists including Winnie Wu said in a note on Thursday.

Despite Friday's gain, Hong Kong's benchmark index has still lost 0.2 per cent this week, on top of a 3 per cent retreat from the preceding week. Concerns about China's economic recovery outweighed optimism about an imminent rate cut from the US Federal Reserve next week, as markets still need to see fundamentals turn the corner to rally, HSBC Qianhai said.

"Even though [the] Fed's rate cuts could be a positive catalyst, solid fundamentals would be a prerequisite for China equities to rebound," strategists including Steven Sun said in a note on Friday. Earnings pressure remains strong following interim results, and easing from the Fed may not be enough to boost China equities, they added.

Other Asian stocks were mixed on Friday. Japan's Nikkei 225 lost 0.7 per cent, South Korea's Kospi declined 0.2 per cent, while Australia's S&P/ASX 200 added 0.2 per cent.

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