Asian stock markets rallied following the announcement of new stimulus measures by China’s central bank, aimed at achieving the country’s economic growth targets and reversing a recent selloff in equity markets. Hong Kong shares experienced the most significant gains, with key indexes rising approximately 3%. Onshore Chinese markets also showed resilience, with major indexes climbing over 1% after officials indicated plans to establish a stock stabilization fund. The MSCI Asia Pacific Index increased by 0.5%, while Japanese stocks rose following a holiday break. Notably, the yield on China’s 10-year government bond dipped to a historic low of 2%.
The Chinese government is poised to inject at least 500 billion yuan (about $71 billion) in liquidity support for the stock market. This initiative will allow brokerages and investment funds to access central bank funding for equity purchases, especially after the benchmark CSI 300 Index plunged to its lowest point in over five years earlier this month. This stimulus is part of a broader strategy to revitalize the economy, which includes cutting a key short-term interest rate and reducing borrowing costs on approximately $5.3 trillion in mortgages.
Despite the initial positive response to the stimulus, analysts caution that the market rally may lose momentum as underlying economic issues, including deflationary pressures, remain unresolved.
“These measures clearly indicate that Beijing recognizes the urgency of improving sentiment in both the stock and housing markets,” remarked Siguo Chen, a portfolio manager at RBC BlueBay Asset Management. “While they may help the market find a temporary bottom, more substantial fiscal support will be necessary in the long run.”
The People’s Bank of China (PBOC) has announced plans to create a swap facility, enabling securities firms, investment funds, and insurance companies to access liquidity for stock purchases, according to the governor’s statements during a briefing on Tuesday.
“This type of initiative can generate additional funds, enhance market liquidity, and boost investor confidence in the short term. However, it will not alter the broader market trend,” noted Zhou Nan, founder and investment director at Shenzhen Long Hui Fund Management Co. He added that there is a strong likelihood that the market will experience further declines before ultimately stabilizing.
In the United States, stock futures slipped slightly after the S&P 500 gained 0.3% in the previous session, nearing last week’s all-time high.
Recent data released on Monday indicated that U.S. business activity expanded at a slightly slower rate in early September, with expectations deteriorating and a measure of prices received reaching a six-month high. This has fueled optimism that the U.S. economy can achieve a soft landing. Investors are now awaiting additional data on the Federal Reserve’s preferred inflation gauge and U.S. personal spending figures later this week.
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