Equities
What China’s economic stimulus measures could mean for investors
3 min read 26 Sep 24
Chinese policymakers have unveiled a raft of measures to support the country’s embattled economy. This marks a new determined resolve from policymakers, according to David Perrett, Co-Head of Asia Pacific Equities – but what might it mean for investors in the country’s stock market?
In recent weeks, the state of China’s economy – its need for support to spur growth and fight the threat of deflation – has been a hot topic for senior Chinese economic policymakers, both in office and retired.
Earlier in September, for example, the former central bank governor, Yi Gang, a highly respected technocrat, said in a public forum that China must focus on the threat of deflation. More recently still, a senior scholar and policy adviser to top economic officials came out with a similar message. A consensus has been forming that the challenges facing the economic powerhouse’s domestic market need to be addressed.
In a joint press conference on 24 September, China’s central bank and financial regulators announced a number of economic stimulus measures, including cutting its main interest rate by 20 basis points and existing mortgage rates by 50 basis points, reducing the amount of reserves banks are required to hold, and cutting downpayments for second homes.
“China’s central bank and financial regulators announced a number of economic stimulus measures, including cutting its main interest rate by 20 basis points.”
They also announced measures to help clear housing inventory and support the stock market. The likelihood of a further easing in monetary policy before year end was also indicated.
China’s improving policy backdrop
In themselves, these proposed measures are unlikely to turn the economy around instantaneously. However, the coordinated nature of the policies across different government bodies and following powerful prior signalling suggests a more determined resolve from policymakers.
In addition to further interest rate cuts, there is likely scope for increased fiscal spending as well.
This further improvement in the policy backdrop is important. Many Chinese companies are trading at very undemanding levels of valuation, in our view, and at the same time are acting in an increasingly shareholder friendly manner, with increased dividends and buy backs.
Any sense that the economy is set to stabilise and then improve incrementally through 2025 could potentially lead to a very positive environment for Chinese equities.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested. Past performance is not a guide to future performance. The views expressed in this document should not be taken as a recommendation, advice or forecast.
