After Chinese stock markets rebounded after the launch of a stimulus package from Beijing, designed to support real estate, stock markets, and boost investor sentiment, wealth managers discuss the impact.

China equities rallied on Tuesday after the People’s Bank of China (PBoC) and other Chinese regulators announced a number of stimulus measures aimed at reviving the slowing economy.

The offshore Hang Seng Index and the onshore CSI 300 Index surged 4 per cent and 4.3 per cent, respectively, their best single-day gains in more than two years with gains extending on Wednesday. US-listed shares of Chinese companies rallied sharply overnight on Tuesday, with e- commerce, electric car and Macau gaming stocks up by mid- to high-single digits.

Stimulus package
As part of the stimulus, the central bank cut its policy rate by 20 basis points, in line with expectations, and lowered the banks’ reserve requirements.

More support was also announced for the struggling real estate sector. Existing home mortgage rates will be cut by 50 bps, narrowing the gap against new mortgages while also reducing the interest burden on existing owners. The minimum down payment ratio for second-home buyers was reduced to 15 per cent from 25 per cent, in line with the rate on new home purchases. Property inventory buybacks were also supported, with loan-to-value ratios on relending lifted to 100 per cent from 60 per cent.

The biggest positive surprise was the support for equity markets in the form of new swap and loan facilities to support stock buying.

Here are some reactions from wealth managers to the package.

John Woods, chief investment officer, Asia, and senior macro strategist, Homin Lee, Lombard Odier
“Against profoundly depressed expectations, it could challenge overwhelmingly negative investor positioning. However, far more will be needed to change our cautious assessment of China’s medium- to long-term economic trajectory. The most immediate challenge is to stabilise the real estate market, which continues to struggle under falling prices and a glut of unsold or unfinished homes. While the latest policy announcements could induce more state-owned enterprises to absorb some excess housing inventory, households’ demand for housing loans remains extremely weak due to accelerating falls in house prices and lingering doubts about developers.

“Lombard Odier retains a cautious long-term outlook on China's economy and assets, pending the outcome of the US elections. For risk-tolerant investors looking to increase their existing China-related allocations, selected Hong Kong-listed consumer discretionary and communication stocks may be worth considering.”

Mark Haefele, chief investment officer, UBS Global Wealth Management
“This latest announcement represents a welcome shift to a more accommodative stance, but it still falls short versus major stimulus packages of past years that spurred lasting rallies. To break the ongoing deflation-deleveraging loop, we think monetary easing alone is insufficient and that additional fiscal support must play a bigger role. More fiscal stimulus could come in October in the form of a budget revision, in our view, especially if third-quarter GDP remains well below the 5 per cent level.

“Within China equities, we anticipate near-term support on the stimulus news, contingent on evidence of effective execution. We expect rate cuts and capital market support to benefit state-owned enterprises (SOEs) concentrated in high-dividend sectors, including utilities, telecoms, energy firms, and financials. We remain cautious on property developers, but the leading property agencies could benefit from the easing policies. Within currencies, we continue to recommend hedging the Chinese renminbi exposure heading into the US election. We remain most preferred on the Australian dollar, which we believe should find support from China’s pro-growth measures. The property boost supports steel-making commodities like iron ore, which should see upside for major Australian miners.”

Jing Sima, BCA Research’s China strategist
“The monetary easing measures announced by the PBoC today may provide a temporary boost in sentiment. However, as demonstrated by Japan's housing crisis in the 1990s, monetary easing alone is insufficient to stop a deflationary spiral or drive a sustained recovery in consumption. Without a rebound in the labour market or substantial fiscal stimulus aimed at increasing household disposable income, this uplift in sentiment is likely to be short-lived.

“The 50 bps cut in existing mortgage rates could theoretically save homeowners around 150 billion renminibi annually in interest payments, offering some relief by reducing financial burdens and easing cash flow pressures. Nonetheless, on a broader level, these savings are unlikely to significantly stimulate household consumption or provide a meaningful boost to the overall economy.”

Robert Gilhooly, senior emerging markets economist at abrdn
“China has stepped up with a more aggressive set of policy easing measures. A stronger currency and Fed rate cuts are likely to have helped spur action, as has the acknowledgement that this year’s growth target may not be achieved. Compared with the incremental approach we have become accustomed to, today’s package is more meaningful, but beating low expectations is a far cry from a package that will conclusively turn around the economy and market sentiment.

“The 50 bps cut to existing mortgage holders’ borrowing costs is the closest thing we’ve had to a fiscal transfer for households. But other measures to support the property market still appear unlikely to deal with incomplete apartments, which ultimately need someone (local or central government) to bear a substantial fiscal cost. Overall, household spending is likely to remain constrained by the negative wealth effect from falling house prices and a weak labor market.”