Barclays: China’s Stimulus Measures Are “Bigger Guns, But No Bazooka”

China’s recent initiative to introduce new stimulus measures has positively influenced investor sentiment; however, analysts at Barclays suggest that additional support will be necessary to maintain this upward momentum.

This week, Beijing announced various policies aimed at revitalizing the economy and the struggling housing sector. Key measures include cuts to interest rates, reductions in existing mortgage costs, and lowered downpayment requirements across all types of homes.

The People’s Bank of China (PBOC) has initiated a swap program valued at 500 billion yuan, aimed at facilitating easier access to funds for financial institutions to purchase stocks. Additionally, the PBOC plans to provide up to 300 billion yuan in low-interest loans to commercial banks to assist in funding share purchases and buybacks by publicly listed companies.

Furthermore, the reserve requirement ratio, which dictates how much cash banks need to keep in reserve, was reduced by 50 basis points, which should unlock approximately 1 trillion yuan for new lending.

Following these announcements, global stock markets experienced a rally as market participants evaluated whether these measures would be sufficient to rejuvenate the world’s second-largest economy.

In a note to clients, Barclays analysts commented that the announcements took the markets by surprise and sent a strong message, especially regarding equities. However, they also emphasized that further actions, particularly on the fiscal side, are necessary to sustain the recent gains in the stock market.

The analysts observed that while the stimulus measures were significant, they did not meet expectations for a large-scale, sweeping intervention.

As for potential future moves, Barclays indicated that the PBOC might further decrease reserve requirement ratios by an additional 25 to 50 basis points. They also mentioned the possibility of subsequent rounds of the 500 billion yuan relending program.

Additionally, the analysts anticipate that the PBOC will lower its policy rate by 10 basis points per quarter from the fourth quarter of this year through to the second quarter of 2025.

They also expect an acceleration in the issuance of local-government special bonds, which could contribute positively to infrastructure investment.