The announcement by the Chinese central bank to impose the new stimulus measures that the market had been anticipating in recent weeks has been interpreted by investors and analysts not only as an attempt by the entity to ensure that the country meets this year’s economic growth target, but also as a way to stop the stock market’s decline.
The central entity has put forward the creation of a stock market stabilization fund to which at least 114 billion dollars will be allocated and will allow brokerage firms and investment funds to take advantage of central bank funding to buy stocks. The move is part of a broader package of policies aimed at boosting the economy, including a cut in the short-term policy rate and a reduction in borrowing costs of up to $5.3 trillion in mortgages.
The reaction of the markets was immediate. The Hong Kong stock exchange is the one that famous the announcement by recording this Tuesday its most bullish day of the year. More precisely, more than a 4.10% that day, something that had not happened for a year and a half, since March 2023.
With this advance, the Hang Seng jumps 11% from the lows of the month and is already 3% from its high of the year. In the case of the old CSI 300, the one now known as ShenZhen Indexthe best session of the year was also recorded. And not only that, but it was also the most bullish day since the pandemic (July 2020) adding 4.3%, which allowed it to move away from more than 6% of the lows of the year and approach the levels in which the exercise began.
A reaction which, as Jonathan Pines, manager of the Asia ex-Japan fund at Federated Hermes Limited, explains, responds to the fact that for at least a year, investors have been waiting for the bazooka which has revived confidence in both stocks and real estate (two key assets held by Chinese households).This new, multifaceted and energetic approach underlines, if nothing else, the seriousness with which the government is tackling the problem. And this may be what is needed to finally increase the value of assets, which would help revive consumer confidence,” the expert explains.
“The stimulus package could also provide a tailwind for global economic growth,” contextualizes Jean-Paul van Oudheusden, market analyst at eToro.
It will now be up to the market to assess whether the measures announced will be sufficient to reactivate the Chinese economy, or at least to mitigate its structural slowdown. At least beyond the short term that the markets have already integrated with their increases.
And that’s it, The economy of this Eastern country still faces many challenges. That’s according to Alicia García Herrero, chief economist for Asia-Pacific at Natixis CIB and senior researcher at Bruegel, who lists several, how to rebalance foreign trade – which would require strengthening private consumption -, solve the problem of overproduction and reactivate the Chinese private sector, which is increasingly weakened by strict regulations and other coercive measures by the government.
A historic recovery plan
In addition to the stock market aid, the recovery plan presented by The People’s Bank of China also offers measures to support the financial and real estate sectors to revive the recovery of the world’s second-largest economy, amid concerns over its ability to meet its growth target this year.
Cut the bank reserve ratio to the lowest level since 2020 to increase credit, lower interest rates on one of the country’s banks’ main funding tools, reduce interest on existing mortgages or reduce to 15% the minimum entry fee that must be paid by those wishing to purchase a second homeare some of the measures announced in addition to a plan for local governments to convert unsold homes into social housing.
The central bank governor also unveiled a plan to support the country’s struggling real estate sector, which includes cutting borrowing costs by up to $5.3 trillion in mortgages and the relaxation of rules on purchasing second homes.
