Hang Seng Index Rallies as PBoC Stimulus Offsets US-China Tensions

Wall Street Shakes Off the Moody’s Downgrade

Wall Street extended gains on Monday, May 19, as investors brushed aside Moody’s US downgrade. The Nasdaq Composite Index edged up 0.02%, while the Dow and S&P 500 rose 0.32% and 0.09%, respectively.

On Friday, May 16, Moody’s downgraded the US sovereign credit rating from Aaa to Aa1, citing the government’s ballooning debt and rising interest costs. Despite the downgrade, investors appeared confident in the economy’s underlying strength, buoyed by hard data.

Some commentators argue that while hard data reflects economic strength, soft data remains weak due to negative media sentiment.

PBoC Cuts Loan Prime Rates

The overnight rebound in US markets set the tone for the Asian session on Tuesday, May 20. Supporting the mood, the People’s Bank of China cut the 1-year and 5-year loan prime rates (LPR) by 10 basis points to 3% and 3.5%, respectively. The move aims to drive credit demand and stimulate consumption amid signs of softening demand.

Brian Tycangco, editor at Stansberry Research, downplayed April’s softer retail sales data from Monday, stating:

“China’s online retail sales grew by 7.1% in April 2025, which was slower than the 7.9% growth registered in the first 3 months of the year. This is NOT a worrying sign. Note that the first 3 months of the year benefitted from the CNY celebration and other smaller holidays that boosted domestic consumption. Expect growth to pick up again in May as the weeklong labor day holiday impact is felt.”

Hang Seng Gains on PBoC Move

Asian equities advanced following central bank moves and improving global cues. The Hang Seng Index advanced 1.33% as the PBoC cut loan prime rates. Tech stocks benefited from the PBoC move, with the Hang Seng Tech Index rising 1.29%. Tech giant Alibaba (9988) rallied 2.43%, while Baidu (9888) gained 1.10%.

Mainland China’s equity markets also posted gains, with the CSI 300 and Shanghai Composite up 0.46% and 0.28%, respectively. However, the gains were modest amid increasing US-China trade tensions. On May 19, Beijing responded to reports that the US plans to adjust chip export controls. The Kobeissi Letter reported:

“China vows to take measures if the US insists on ‘going its own way’.”

Nikkei 225 Rises as Yen Weakens

Japan’s Nikkei 225 rose 0.51% on Tuesday morning, supported by trade optimism and a weaker Yen. The USD/JPY pair briefly climbed to a high of 145.507, boosting demand for export-linked stocks. A weaker Yen could improve Japan’s export competitiveness and raise corporate earnings.

Sony Corp. (6758) rallied 3.41%, while Softbank Group (9984) and Tokyo Electron (8035) advanced 1.61% and 1.71%, respectively.

ASX 200 Climbs on Rate Cut Bets

Australia’s ASX 200 rose 0.38% ahead of the RBA’s interest rate decision and press conference. Expectations of a 25-basis-point rate cut boosted demand for banking and tech stocks. The S&P/ASX All Technology Index rose 0.63%. Aussie banks ANZ and National Australia Bank rallied 2.08% and 1.90%, respectively.

Outlook: Eyes on Trade and Beijing Stimulus

Markets remain sensitive to US-China developments. Rising tensions could fuel risk aversion, while easing tensions may trigger a market rally.

Investors should also monitor any stimulus news from Beijing and further central bank moves. Fresh measures and rate cuts could support demand for risk assets.

Stay tuned for real-time updates on trade negotiations and policy shifts. Follow our live coverage here for updates on US-China trade talks.