Barclays: China’s Stimulus Measures Were “Bigger Guns, but No Bazooka”

China’s recent introduction of new stimulus measures has boosted investor sentiment, but analysts at Barclays believe additional support will be necessary to maintain the stock market rally.

Earlier this week, Beijing announced a series of policies designed to support the struggling economy and fragile housing sector. These measures include a reduction in interest rates, lower existing mortgage costs, and decreased minimum downpayment requirements for various types of homes.

The People’s Bank of China (PBOC) also initiated a swap program starting at 500 billion yuan, intended to provide funds, insurers, and brokers with easier access to financing for stock purchases. Additionally, the PBOC will offer up to 300 billion yuan in low-interest loans to commercial banks to facilitate share purchases and corporate buybacks.

Furthermore, the reserve requirement ratio, which dictates the amount of cash banks must retain as reserves, was reduced by 50 basis points, releasing around 1 trillion yuan for new lending.

Following these announcements, global stock markets saw a surge as investors evaluated the potential effectiveness of these measures in revitalizing the world’s second-largest economy.

In a message to clients, Barclays analysts noted that these announcements came as a surprise and strongly signaled the potential for equities, but they stressed that more action, especially fiscal measures, is needed to sustain the gains in the stock markets.

While the stimulus steps were significant, analysts indicated they fell short of the expectations for a comprehensive, robust package of support.

Looking ahead, Barclays analysts suggested the possibility of further reserve requirement cuts of 25-50 basis points. They also discussed the potential for additional rounds of the 500 billion yuan relending program.

They anticipate that the PBOC will gradually lower its policy rate by 10 basis points each quarter from the fourth quarter of this year through the second quarter of 2025. Additionally, they expect Beijing to continue accelerating the issuance of special bonds for local governments to enhance infrastructure investment.