{"id":22223,"date":"2023-06-13T19:35:23","date_gmt":"2023-06-13T23:35:23","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/china-cuts-rates-to-revive-economy-it-could-put-a-floor-under-stocks\/"},"modified":"2023-06-13T19:35:25","modified_gmt":"2023-06-13T23:35:25","slug":"china-cuts-rates-to-revive-economy-it-could-put-a-floor-under-stocks","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=22223","title":{"rendered":"China Cuts Rates to Revive Economy. It Could Put a Floor Under Stocks."},"content":{"rendered":"
\n
<\/p>\n
<\/p>\n<\/figure><\/div>\n

As more economic data out of China disappoints, the country\u2019s central bank cut a key lending rate on Tuesday, signaling more stimulus could be forthcoming to give the recovery another nudge. <\/p>\n

That could, at the least, keep Chinese stocks from falling further. It might even provide a near-term lift, though the medium-term outlook is still hazy. But economists and strategists are divided on how aggressively the government is likely to move. <\/p>\n

\n

The People\u2019s Bank of China\u2019s decision to cut its policy rate to 1.9 % from 2.0%, in the first reduction since August, came on the heels of credit data that came in weaker than expected for May, suggesting little appetite for borrowing. Analysts see the move as an indication officials recognize the damage the economy has suffered over the past couple of years\u2014the challenges included the pandemic, harsh restrictions to control Covid-19, and a crackdown on the property and technology sectors\u2014and the hurdles blocking a stronger recovery.<\/p>\n

The iShares MSCI China exchange-traded fund (
\n MCHI
\n ), which is down 2.9% so far this year, rose 1% on Tuesday morning to $46.11. For comparison, the
\n S&P 500
\n is up 13% in 2023.<\/p>\n

Though officials are increasingly striking a more dovish tone and are likely to come out with more stimulus measures, analysts caution those who expect policy makers wary of the aggressive stimulus measures of the past to change their stance. <\/p>\n

\u00a0\u201cI still expect stimulus to be relatively constrained,\u201d said Rory Green, head of China and Asia research at TS Lombard, via email. \u201cMarkets are likely to be disappointed by stimulus announcements and their impact on the real economy.\u201d<\/p>\n

Since 2016, Beijing has been more hesitant to unleash economic stimulus than it had been. And moves to boost growth tend to be \u201cdrip fed,\u201d rather than flooding the financial system as past efforts did, a pivot in keeping with Xi Jinping\u2019s push for slower, more sustainable, higher-quality growth. <\/p>\n

Green doesn\u2019t expect that stance will change soon.<\/p>\n

Joyce Chang, head of global research at J.P. Morgan, also doesn\u2019t expect meaningful stimulus out of Chinese officials. Unlike in the past, when authorities could spend to revive manufacturing, fueling demand for commodities, the recovery this time hinges on reviving domestic consumption, Chang told Barron\u2019s<\/em>.<\/p>\n

One source of concern among investors is that confidence, both among consumers and companies, hasn\u2019t yet bounced back. \u201cThe market is debating if it\u2019s just the policy-supported sectors recovering first [with the economy reopening] or whether the [lack of] private sector confidence reflects more prolonged concerns about policy risk,\u201d Chang said. <\/p>\n

According to Richard Schmidt, global equity manager at Harding Lovener, the current situation, marked by a lack of confidence and significant government efforts to juice growth, represents an opportunity. Valuations in China are more attractive than in other areas of emerging markets such as Latin America and India, he said. <\/p>\n

Schmidt has been adding to his China holdings, favoring suppliers to electric- vehicle companies and other domestically oriented companies rather than exporters or the big e-commerce companies that were in regulators\u2019 crosshairs in the past couple of years.<\/p>\n

Some money managers are re-evaluating how much exposure to China they want, given worry over relations between Beijing and Washington and concerns over longer-term domestic policies, But Schmidt said it is very hard to stay clear of the world\u2019s second-largest economy. <\/p>\n

As for doubts about the recovery, Schmidt said, \u201cIt is just a matter of time\u201d until confidence returns.<\/p>\n

Clocktower Group Chief Strategist Marco Papic argued in a note to clients that the fact that the fact that the recovery is sputtering is a reason to believe Chinese stocks are likely \u201cclose to reaching a bottom.\u201d That is because the economic weakness will make it hard for Chinese authorities to wait to take action to support domestic growth, meaning more stimulus is on the way, he said. <\/p>\n

The rate cut indicates that dynamic could be starting to play out. In a note to clients, Gavekal analyst Xiaoxi Zhang said the PBOC\u2019s rate cut\u2014a relatively rare move since they can ding banks\u2019 thin profit margins\u2014sends a powerful signal about \u201cpolicy makers\u2019 newfound intent to support growth.\u201d<\/p>\n

While authorities may be more willing to stabilize the economy, giving stocks a near-term lift, still unclear is whether the efforts will work to create significant momentum in the economy. That could be what is needed to convince Chinese consumers and companies to start spending more freely.<\/p>\n

Write to Reshma Kapadia at reshma.kapadia@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

As more economic data out of China disappoints, the country\u2019s central bank cut a key lending rate on Tuesday, signaling more stimulus could be forthcoming to give the recovery another nudge. That could, at the least, keep Chinese stocks from falling further. It might even provide a near-term lift, though the medium-term outlook is still […]<\/p>\n","protected":false},"author":1,"featured_media":22224,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-22223","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nChina Cuts Rates to Revive Economy. 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