Asia-Pacific markets opened the week with mixed performances as global investors digested China’s latest policy decision and kept a close watch on U.S. monetary signals. On Monday, the People’s Bank of China (PBOC) left its benchmark lending rates unchanged for the fourth consecutive month, even after the U.S. Federal Reserve cut rates last week.
China’s central bank announced that the one-year loan prime rate (LPR) remains at 3.0%, while the five-year LPR — the reference rate for mortgages — stays at 3.5%.
The one-year LPR underpins most new and outstanding loans for businesses and consumers.
The five-year LPR is crucial for China’s embattled housing market.
The decision was largely in line with economists’ expectations. Analysts noted that policymakers are trying to balance the need to stabilize growth with the risks of further currency weakness, as the yuan has experienced volatility in recent months.
China last trimmed both LPRs in May, cutting them by 10 basis points to support demand. Since then, the central bank has opted for a cautious stance despite mounting economic pressures.
Fresh data from August underscored the challenges facing the world’s second-largest economy:
Retail sales slowed to just 3.4%, underscoring weak consumer sentiment.
Industrial output rose 5.2%, the slowest pace since August 2023.
Consumer prices (CPI) fell more than expected, while producer prices (PPI) remained in deflation for nearly three years.
Exports increased 4.4%, the weakest growth since February, reflecting softer global demand and the effects of U.S. trade restrictions.
The real estate sector remains a major drag. Sales, new construction starts, and property investment all deteriorated in August, highlighting the deepening slump in housing and investor confidence.
Barclays economists commented: “Almost all housing indicators deteriorated further in August. We expect marginal monetary easing later this year to help China achieve its 5% growth target.”
The PBOC’s cautious approach triggered uneven reactions across the region’s financial markets:
China: The CSI 300 index opened flat before slipping into negative territory.
Hong Kong: The Hang Seng Index lost 1%, while the Hang Seng Tech Index dropped 1.18%.
Japan: The Nikkei 225 gained 1.28%, and the Topix added 0.8%. Yields on Japan’s 10-year government bonds surged to 1.65%, the highest level since July 2007, reflecting renewed inflation pressures.
South Korea: The Kospi rose 0.71%, and the Kosdaq advanced 0.9%. Shares of Samsung Electronics jumped more than 4% after local reports confirmed that Nvidia approved the company’s fifth-generation high-bandwidth memory (HBM) chips, following nearly 18 months of testing.
Australia: The ASX/S&P 200 gained 0.49%.
India: The Nifty 50 edged down 0.12%, while the Sensex fell 0.48%. However, Adani Power surged more than 15% as its five-for-one stock split took effect, a move designed to boost liquidity and make shares more accessible to smaller investors.
Globally, investor sentiment remains buoyant following last week’s Fed decision. U.S. equities rallied to new records on Friday:
The Dow Jones Industrial Average climbed 172.85 points, or 0.37%, to a record 46,315.27.
The S&P 500 added 0.49% to settle at 6,664.36.
The Nasdaq Composite advanced 0.72% to close at 22,631.48.
Markets are now pricing in the possibility of two more quarter-point cuts by the Fed before the end of the year, according to the CME FedWatch Tool.
While the Fed has already shifted toward easing, China’s cautious stance raises questions about whether Beijing will soon follow with additional stimulus. Analysts suggest that more targeted support may be inevitable if the slowdown worsens.
Barclays forecasts that in the fourth quarter, the PBOC could:
Cut the one-year LPR and seven-day reverse repo rate by 10 basis points.
Lower the reserve requirement ratio (RRR) by 50 basis points to free up bank liquidity.
Hong Hao, Managing Partner and CIO at Lotus Asset Management, emphasized the urgency of reform: “Beijing’s focus has shifted from risk management to growth stimulation, moving from tolerating deflation to reflating the economy. China must now curb inefficient, debt-driven investments and channel resources into more productive sectors.”
The divergence between Wall Street’s record highs and Asia’s cautious sentiment highlights the fragile balance facing global markets. For China, the question is whether incremental easing will be sufficient to restore momentum in consumption, stabilize the property market, and safeguard its 5% growth target.
Investors worldwide will closely monitor upcoming data releases, particularly retail and property figures, as well as any new signals from Beijing about fiscal or monetary stimulus. How China navigates this delicate stage could set the tone not only for regional equities but also for broader global market sentiment.
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