Rate cuts cheer up investors

Investors at a brokerage in Beijing on Monday. The Shanghai Composite Index rose 0.5 percent to 3,429.58 points, the highest level since Aug 21 and 17 percent higher than the year's low on Aug 26, following the latest interest rate cuts by the central bank on Friday. [Photo/China Daily]

Benchmark Shanghai Composite Index hits two-month high on new plan hopes

The benchmark Shanghai Composite Index rose to a two-month-high on Monday, reflecting optimism among investors after the central bank cut interest rates for the sixth time this year on Friday.

The People's Bank of China cut the benchmark deposit rate and lending rate by 25 basis points, bringing down the one-year benchmark lending rate to 4.35 percent and one-year benchmark deposit rate to 1.5 percent.

The central bank also removed the ceiling on deposit rates, which enables banks to set deposit rates freely, an important step toward full interest rate liberalization.

On Monday, the SCI rose 0.5 percent to 3,429.58 points, the highest level since Aug 21 and 17 percent higher than the year's low on Aug 26.

Interest rate cuts are the biggest influencers on market movements, said analysts.

"The rate cuts will benefit the stock market and whet risk appetite," said a research note from Shanghai-based Guotai Junan Securities Co Ltd.

Jiang Chao, an analyst with Shanghai-based Haitong Securities Co Ltd, said that there is still room for the stock market to rise.

However, a bullish market does not rely on rate cuts alone. The market sentiment will improve when the real economy recovers and enterprises' profit margins widen, which take time, said Jiang.

Stocks in sectors that rely on credit and lending such as property and infrastructure will benefit most from the cuts, said analysts.

The Fifth Plenum, an ongoing meeting of the Communist Party of China that will set development plans for the next five years, is expected to prompt investors to cash in on stocks that are likely to benefit from the plans, said analysts.

Stocks in sectors like pharmaceuticals and healthcare, smart manufacturing, Internet technology-based services and new and renewable energy will benefit from the plans, according to research notes from brokerages.

"The thrust of the new plans will be on maintaining economic growth, creating nationwide integrated markets, developing rural areas, protecting the environment and widening use of new energy, promoting the public services and opening up services market," said a research note from Suzhou-based Soochow Securities Ltd.

Most of the Asian bourses rose slightly on Monday. Japan's Nikkei 225 index rose 0.65 percent to 18,947.12 points while South Korea's KOSPI Composite Index rose 0.38 percent to 2,048.08 points.