Please see the below article from EPIC Investment Partners detailing their thoughts on China’s recent ploys in an attempt to stimulate their economy. Received this morning 24/09/2024.
In a bold move to revitalise its flagging economy, China unveiled a sweeping package of stimulus measures. People’s Bank of China (PBoC) Governor Pan Gongsheng, in an unusual public briefing this morning, announced a series of decisive actions aimed at boosting growth and combating deflationary pressures.
Pan revealed plans to reduce the reserve requirement ratio (RRR) for banks by 50bps in the near term, with the possibility of a further 25-50bps of cuts by year-end. The PBoC will also lower the 7-day repo rate by 0.20% to 1.50% and hinted at a potential 0.20-0.25% reduction in the loan prime rate. The RRR cut alone will inject CNY 1tn of liquidity into the banking system.
The troubled property sector received particular attention. The PBoC lowered mortgage down payments for second homes to 15% from 25%, easing previous restrictions. Furthermore, Pan outlined plans to extend existing support measures for the sector by two years and reduce interest rates on current mortgages.
To shore up the stock market, policymakers announced a CNY 500bn fund to support brokers, insurance companies, and funds in purchasing stocks. An additional CNY 300bn will aid companies in conducting share buybacks.
The stimulus package sent ripples through global markets, with China’s CSI 300 index surging 4.3% – its best performance since July 2020. Hong Kong’s Hang Seng index rose 4%, while European markets also rallied. China’s 10-year government bond yield hit a record low of 2% during Pan’s address.
Markets interpreted these measures positively, particularly as they were announced in tandem. However, disappointment lingered over the lack of fiscal stimulus, suggesting the PBoC may be struggling to convince the central government to implement a larger fiscal deficit.
The timing of the announcement is noteworthy, coming shortly after the US Fed’s interest rate cut, which narrowed the differential between US and Chinese rates, giving the PBoC more room to manoeuvre.
As China grapples with a prolonged property sector slowdown, weak consumer sentiment, and persistent deflationary forces, all eyes are on Beijing to see if this stimulus salvo can reignite the world’s second-largest economy. While the effectiveness of these measures remains to be seen, China is clearly taking key steps to regain economic momentum.
Please continue to check our blog content for advice, planning issues, and the latest investment, market and economic updates from leading investment houses.
Alex Clare
24/09/2024.