A Recovery Plan Favorable to Chinese Stocks

In this article, our Group Chairman, Alain Freymond, and Group CEO, Ahmad Saidali, provide valuable insights on China's recent economic measures aimed at boosting the economy and reviving interest in Chinese stocks amidst growth challenges.

Measures that should be enough to rekindle interest in Chinese Stocks

The Chinese authorities have finally announced new economic support and stimulus measures. The People’s Bank of China reduced its benchmark interest rate from 1.7% to 1.5% and also announced a 0.5% cut in the banks' required reserve ratio (RRR), thereby releasing nearly 1 trillion yuan in liquidity into the economy. These measures, announced simultaneously, were accompanied by additional announcements and a plan aimed at supporting the struggling real estate sector, which has been in difficulty for several years. Borrowing costs will be lowered, and the rules for acquiring second homes will also be eased. The minimum down payment will be reduced from 25% to 15%.

After several years of a declining stock market, the central bank announced that it would inject over 110 billion dollars in liquidity while also hinting at the possibility of creating a market stabilization fund. What is surprising today is not so much the announcement of these measures, which were not entirely unexpected, but the extent of media coverage surrounding them. This likely indicates some nervousness among the authorities, who are clearly concerned about the economic situation and may be worried about failing to achieve the 5% growth target set for 2024. The authorities also aim to create a positive confidence shock by delivering a concentrated set of measures.

The interest rate cuts will also influence consumer confidence and may be sufficient to somewhat revive domestic consumption. The initial reaction from investors has been rather positive, with the Hong Kong index jumping from 18,227 points to 19,000 points in one session (+4.2%). The Hang Seng had lost 56% of its value between 2018 and its lowest point in January 2024. These measures should restore some confidence among investors and rekindle interest in Chinese stocks.