Taipei, July 6 (CNA) Shares of companies that have close business ties with China moved higher Friday morning after the People's Bank of China (PBOC) cut interest rates in a bid to boost the mainland's economy, dealers said.
Buying focused on select domestic demand oriented stocks, such as retailers and food suppliers, on hopes that the rate cuts will stimulate demand in China and strengthen these companies’ profitability, dealers said.
As of 11: 25 a.m., shares of retailer Ruentex Development Co. had risen 0.76 percent to NT$46.60 (US$1.56), and shares of retailer Ruentex Industries Ltd. were up 2.0 percent at NT$51.00.
Shares of food maker Uni-President Enterprises had gained 0.41 percent to reach NT$49.45, and shares of Lian Hwa Foods Corp. had climbed 2.42 percent to 38.05. The weighted index was down 0.60 percent at 7,343.38 points on turnover of NT$42.99 billion.
"The market expects that the latest rate cuts in China will benefit these retail business operators and food manufacturers the most, as high liquidity will boost demand for daily necessities," Horizon Securities analyst Benson Huang said.
China's central bank on Thursday cut its one-year lending rate by 0.31 percentage points to 6 percent and lowered its one-year deposit rate by 0.25 percentage points to 3 percent.
Huang said many investors expect retailers and food makers to report handsome earnings for the first half of this year, based on their massive investments in China.
"The rate cuts are expected to further boost their bottom lines for the rest of the year," Huang said. "That's why investors shifted their attention to these stocks, leading them to outperform the broader market after the PBOC's move."
In June, the PBOC lowered its interest rates for the first time since 2008 to take on a slowing global economy caused by the lingering debt problems in the eurozone.
"The PBOC cut key interest rates again, in less a month, indicating that the economic slowdown is worse than the market had expected," Huang said, referring to the weakening manufacturing activity in China.
The European Central Bank also announced overnight a key interest rate cut of 0.25 percent to an all-time low of 0.75 percent, amid concerns over the economic uncertainty.
"It remains to be seen whether the global economy will make a quick turnaround after the latest rate cuts in Europe and China," Huang said. "The market is also looking to see if the U.S. Federal Reserve will pump more funds into the market in a third round of quantitative easing."
(By Frances Huang)