Yardeni Research calls China’s stimulus measures “twin bazookas”
Investing.com — The Chinese government unveiled a sweeping package of new policies in September, including an outsized cut to interest rates and a reduction in existing mortgage costs, as it looked to provide support to China’s sputtering economy and teetering housing sector.
The People’s Bank of China also announced a swap program with an initial size of 500 billion yuan designed to give funds, insurers and brokers easier access to funding needed to purchase stocks. The PBOC also said it would provide up to 300 billion yuan in cheap loans to commercial banks in a bid to help them fund share purchases and buybacks by listed companies.
Stocks in China posted their best weekly performance in almost 16 years following the announcement last month, and the upturn continued into this week. Reports last Sunday said that the PBOC would also tell banks to bring down mortgage rates for existing home loans before Oct. 31, marking a further attempt to reinvigorate the beleaguered Chinese real estate market.
On Monday, Chinese stocks notched their biggest single-day increase in 16 years, bringing the blue-chip CSI300 index up by almost 30% from a February low that stemmed from fears over the outlook for the world’s second-largest economy.
In a note to clients, analysts at Yardeni Research called the measures a “twin bazookas” policy marked by “printing money and spending money.”
However, doubt remains over the longevity of the push higher in stocks, they flagged.
“The question now is whether this rally is sustainable or is just a short-term bounce after sentiment toward Chinese equities reached extreme pessimism,” the Yardeni analysts said.
“Time will tell whether these twin bazookas shoot the silver bullets needed to revive China’s weak consumer demand and ailing property rubble.”
The effectiveness of the stimulus measures will likely be signaled by the copper market, the analysts noted. As the world’s biggest consumer of the metal, accounting for a little over half of the world’s copper demand, any significant economic initiatives from Beijing can heavily impact its prices.
So far, copper has had a muted reaction, with London prices on Thursday evening below a four-month high of $10,080.50 hit after China unveiled its first wave of new support policies.
Despite the spike in Chinese equities, the analysts held to their long-time recommendation that investors should be underweight stocks in the country and overweight US shares.
“We aren’t ready to change our position, for now. We continue to believe that Chinese consumer spending will remain structurally weak,” the analysts said.