• Significant policy shift: China's Politburo has announced a series of policy easing measures, including rate cuts and relaxed housing restrictions, aimed at stabilising the economy and reviving sentiment. Regarding fiscal policy, there was no explicit mention of a supplementary budget, but markets remain optimistic for potential additional budgets by the end of October.
  • Chinese stocks rebound: Following monetary stimulus and liquidity measures from the People’s Bank of China, the Shanghai Shenzhen CSI 300 Index saw its highest weekly rally since 2008, erasing year-to-date losses and rising 7.9% for the year (as of 27 September 2024), fueled by improving market sentiment.
  • More optimistic turn on Chinese assets: Recent policy shifts are supportive for Chinese equities, but while monetary easing and housing adjustments may stabilise sentiment in the short term, the effectiveness of these measures in reversing economic challenges will depend on the introduction of robust consumer-oriented fiscal policies.
  • Views on Chinese equities: Onshore A-shares and select Hong Kong stocks are poised to benefit from policy shifts, with attractive earning yields compared to bond yields, particularly in consumer staples and financial sectors, while caution is advised regarding potential tariff risks and the need for robust fiscal stimulus.

China

The last week of September has seen a change in the direction of China’s policy mix. 

 

China’s Politburo held an unscheduled meeting on economic policies, signalling a clear and urgent shift in monetary and housing policy stances. In terms of monetary policy, the Politburo called for ‘impactful’ rate cuts. It revised ambiguous language on housing, urging a stabilisation in the real estate market. 

 

Regarding fiscal policy, there was no explicit mention of a supplementary budget, but the Politburo reiterated its use of ultra-long government bonds and local special bonds. Markets remain optimistic for potential additional budgets by the end of October

 

                                        Main policy measures announced:

The 7-Day Reverse Repo Rate (the new preferred policy rate) was cut to 1.5% from 1.7%: a bigger cut than we expected and larger than its previous 10 basis point cut in July. This cut will cause the Loan Prime Rate (LPR) to drop 20bp, deposit rates to drop 25bp, and the Medium-term Lending Facility (MLF) rate to drop 30bp;

The Reserve Requirement Rate (RRR) was cut by 50bp to a weighted average of 6.6% from 7%. Governor Pan gave a clear forward guidance that the PBoC will likely cut the RRR again this year by 25-50bp. The RRR cut will release RMB 1trn of liquidity into the banking system;

Guide banks to lower existing mortgage rates to match the new mortgage rates. The PBoC estimates this will lower mortgage rates by an average of 50bp, reducing interest payments for households by a total of RMB 150bn. It will take time for Chinese banks to handle technical changes for 50 million households affected by the policies;

Lower the national minimum down payment ratio for second home buyers from 25% to 15%, the same level as first-time home buyers, marking a symbolic end of policies that strictly restricted speculative investors.

Amundi Experts Answer
What are the principal measures that have been announced, and what is yet to come?
How did the stimulus announcement affect market sentiment?
How did the stimulus package announcement affect your view on Chinese assets?
What are your investment convictions on Chinese equities?

Read the full commentary:

  • 2024-10-04
    China policy: short-term lift or long-term change?
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