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Nikkei Markets

Asian equities gain after Chinese central bank takes steps to boost lending

Chinese carmakers advance

HONG KONG (Nikkei Markets) -- Asian shares outside of Japan advanced Monday after the People's Bank of China cut lenders' reserve requirement ratio amid worries over the economic outlook.

The Nikkei Asia300 Index rose 0.3% to close at 1,267.75.

Late Friday, China's central bank delivered a broad 50-basis-points cut in cash mainland banks must hold as reserves and an additional 100 basis-points reduction targeted for city commercial lenders. The 50-basi-points cut will take effect from Sep. 16. The additional targeted cut of 100 basis points will take place in two stages, effective Oct. 15th and Nov. 15th.

"Given that the headwinds to China's economy from weaker external demand and cooling property construction are likely to intensify in the coming months, we doubt the PBOC will stop at just one RRR cut," Capital Economics said in a note. "We anticipate two 200 basis points worth of RRR cuts by early next year, alongside a 75 basis points reduction in the PBOC's 7-day reverse repo rate and 1-year MLF (medium-term lending facility) rate."

The PBOC's move comes as economists further downgrade their forecasts for China's economic growth. Last week, Bank of Merrill Lynch cut the 2020 growth forecast to 5.7% from 6% on trade tension escalation and risks of policy falling behind the curve. Oxford Economics, too, recently cut the next year's growth target to 5.7%, citing subdued external and domestic prospects.

Data released on Sunday reinforced worries over China's economy. The nation's exports in dollar terms declined 1% in August from a year earlier. Economists polled by Reuters had expected a 2% increase. Imports fell 5.6% compared with expectations for a 6.2% drop.

In movers on the A300 on Monday, mainland lenders closed lower after advancing earlier in the day. China Construction Bank fell 0.3% and Industrial & Commercial Bank of China lost 0.2%.

Index heavyweight Samsung Electronics closed 1.3% higher, while Tencent Holdings slipped 0.3%.

Chinese carmakers advanced. Great Wall Motor added 1.3%, Dongfeng Motor Group climbed 2.6%, and Geely Automobile Holdings closed 5.2% higher. On Friday, Geely reported a 19% decline in total sales volume for August. Daiwa Capital Markets maintained its "buy" rating on Geely, noting that the sales drop narrowed from July's 24% slump. The brokerage said it expects the industry to recover in the second half of the year.

Chinese electric carmaker BYD advanced 2.2%. The company reported late Friday that August total sales volume fell about 14% on year.

Hyundai Glovis declined 1.6%. Reuters reported, citing an official as saying, that a cargo vessel of the company carrying about 4,000 cars bound for the Middle East was listing heavily on Sunday off the coast of the southern U.S. state of Georgia.

Indian engineering conglomerate Larsen & Toubro advanced 2.2%. The company said Monday it won a contract to construct a residential project valued at 50 billion rupees ($694 million) to 70 billion rupees in Mumbai.

--Nimesh Vora

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