(Bloomberg) -- Traders and strategists said a series of shock announcements from China’s central bank would give a short-term boost to stocks and bonds, but they were split on how long the impact would last.
The People’s Bank of China and other regulators made a series of bolder-than-expected announcements on Tuesday, pledging to cut the reserve requirement ratio, lower existing mortgage costs and let funds borrow from the central bank to buy shares, among other things.
Here is a selection of comments:
RBC BlueBay Asset Management (Siguo Chen, portfolio manager)
“These measures clearly shows Beijing now understands and appreciates the urgency of boosting stock market and housing market sentiment”
“Short term it will help market find a bottom but long term I think we need to see more fiscal support”
Oversea-Chinese Banking Corp (Tommy Xie, head of Asia macro research)
“What stands out this time is the PBOC’s introduction of new policy tools to support the equity market, which could have broader implications”
“This move is noteworthy because if these tools succeed in rebooting investor sentiment and reviving animal spirits, it could have a positive medium-term impact on the economy. An increase in equity market activity and confidence could stimulate growth, eventually leading to higher bond yields and a stronger yuan as the economy strengthens”
IG Australia (Tony Sycamore, market analyst)
“The China complex, including Chinese stock markets and commodity markets such as crude oil and iron ore, has been desperately seeking further easing measures from Chinese authorities to counter the Chinese economic slowdown”
“Today’s announcement will help to remove the downside risks to Chinese growth and assist in ending the downward spiral in the Chinese property market that has been observed over the past fifteen months”
Grow Investment Group (Hao Hong, chief economist)
“It is enough for a technical rebound and the market is reacting well. There is indication of further RRR cut in the coming months - each fifty bps RRR cut will unleash one trillion yuan worth of stimulus”
“The interest cut for existing mortgage is confirmed. The timing of the announcement is also interesting. It is right around the level where the quant quake brought the market down to around Feb. So technicals plus policy support are enough to induce a technical rebound.”
“But before house prices stop falling there is no trend reversal”
Maybank Securities Pte. (Wong Kok Hoong, head of institutional equities)
“It is not the bazooka that those looking at HK/China were waiting for and the reaction from some clients is quite limited”
“Market participants would like to see more, perhaps other moves to boost consumption, and the general consensus seemed to be those would not be forthcoming until after the US elections”
“HK stocks rose but we will have to see if those gains can hold”
Chanson & Co (Shen Meng, director)
“Measures to support stock market can’t directly change companies’ earnings trajectory and can’t directly guide investors’ decisions, so while they may be good for the stock market in the mid to long term, they lack substantial basis in the near term”
“Cutting RRR will unleash more cash to lend out, but its impact on lowering financing costs is rather small and therefore its impact on stimulating loan demand from companies and residents is limited too”
“Cutting existing mortgage rates can lower financial burdens of households and to some extent release some consumption demand”
TD Securities (Alex Loo, macro strategist)
“The aggressive easing steps today should cap yuan’s recent strength against the dollar. Bonds can extend their rally as the PBoC appears resolute in fighting deflation pressures”
Union Bancaire Privee (Linda Lam, head of equity advisory North Asia)
“The RRR cut and recent interest rate cuts are very much needed and are timely, particularly in the context of lacklustre loan demand. National teams have always been a staunch investor of local stocks. What surprised the market is the clear direction and funding from the PBOC in being a firm liquidity resort to prop up the stock market. In the near term, Chinese capital markets should enjoy a sweet liquidity honeymoon period, while China is buying time to fix more deep-seated growth problems”
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