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Monday, July 22, 2019, 23:04
Hong Kong stock market plunges as disappointed investors give up hope for Fed rate cut
By Edith Lu
Monday, July 22, 2019, 23:04 By Edith Lu

Investor scaled back their expectations that the US Federal Reserve would aggressively cut interest rates, leading to heavy selling of Hong Kong stocks on Monday.

At the close of trading, the benchmark Hang Seng Index (HSI) had fallen 394.14 points, or 1.37 percent, to 28,371.26. After US stocks fell on Friday, the HSI opened 153 points lower and plunged 461 points to an intraday low of 28,303 during afternoon trading.

The Hang Seng China Enterprises (H-share) Index closed lower 139.1 points, or 1.28 percent, to 10,770.31.

In the past, Asian central bankers routinely get criticized for being behind the curve by cutting interest rates too late. This time, we have already seen five central banks in Asia-Pacific taking a more preemptive approach.

David Chao

Global Market strategist for Asia Pacific at Invesco

The plunge followed drops in the US and most Asian-share markets driven by speculation that a larger interest rate cut from the Fed is now not expected. News media reported on Friday the Fed was likely to cut rates by 25 basis points this month and may make further cuts in the future given global economic growth and trade uncertainties.

The announcement dragged down all three major US indexes on Friday night, with the Dow Jones Industrial Average closing lower 68.77 points or 0.25 percent; the S&P 500 dropping 18.52 points, or 0.62 percent; and the Nasdaq slipping 60.75 points, or 0.74 percent.

New York Fed President John Williams declared at its meeting on July 30-31 that the central bank would lower rates by 50 basis points. But the New York Fed later said Williams’ speech was not about potential policy action at the upcoming Fed meeting.

Analysts believe investors are still watching the Fed for possible interest rate cuts. Until the Fed confirms a decision later this month or any positive updates on Sino-US trade tensions, it is expected the HSI will continue to trade within a narrow range of 28,000 to 29,000.

Meanwhile, interest rate cuts by the central banks in Asia signaled a more-favorable environment for risk assets, including liquidity, in the region, according to American investment management firm Invesco.

The central banks of Indonesia and South Korea cut rates last week, joining Australia, India, Malaysia and the Philippines, which have also cut rates earlier.

“In the past, Asian central bankers routinely get criticized for being behind the curve by cutting interest rates too late. This time, we have already seen five central banks in Asia-Pacific taking a more preemptive approach,” David Chao, global market strategist for Asia Pacific at Invesco, wrote in a note on Monday.

He believed rate cuts will inject liquidity into the region, thereby stimulating economic activity and risk-taking, staving off a recession.

edithlu@chinadailyhk.com

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