China, Hong Kong stocks rise on hopes of lower financing costs

China and Hong Kong stocks rose on Monday on expectation Beijing's decision to switch the benchmark for floating-rate loans could lower financing costs, while a solid forecast for retail sales in 2019 also supported investor sentiment.

The CSI300 index rose 1.2%, to 4,071.95, by the end of the morning session, while the Shanghai Composite Index gained 0.9%, to 3,033.33. The Hang Seng index added 0.6%, to 28,403.75, while the Hong Kong China Enterprises Index gained 0.6%, to 11,264.43.

China's central bank will use the loan prime rate (LPR) as a new benchmark for pricing existing floating-rate loans, in a step that analysts say could help lower borrowing costs and underpin economic growth. "The purpose of the step is to make interest rates more market-driven and help lower financing costs," said Wen Bin, an economist at Minsheng Bank in Beijing.

Overall it's favorable news for the equities market, though the impact on the bond market could be quite limited, Huatai Securities said in a report. China's retail sales are expected to increase 8% in 2019 to 41.1 trillion yuan ($5.89 trillion), the official Xinhua News Agency reported on Monday.

Consumer and securities firms led the gains on the mainland, while banks retreated as their profitability is likely to be hit by the LPR move. The Commerce Ministry has "proactively dealt with" trade frictions with the United States this year, it said on Sunday after an annual work conference.

Around the region, MSCI's Asia ex-Japan stock index was firmer by 0.22%, while Japan's Nikkei index was down 0.69%. The yuan was quoted at 6.982 per U.S. dollar, 0.19% firmer than the previous close of 6.9956.

As of 0410 GMT, China's A-shares were trading at a premium of 25.72% over the Hong Kong-listed H-shares. ($1 = 6.9818 Chinese yuan)