
Yardeni Research Describes China’s Stimulus Measures as “Twin Bazookas”
In September, the Chinese government introduced an extensive new policy package aimed at bolstering the struggling economy and distressed housing sector. This included a significant cut in interest rates and a reduction in current mortgage costs.
The People’s Bank of China (PBOC) initiated a swap program with an initial allocation of 500 billion yuan to improve access to funding for financial institutions such as funds, insurers, and brokers seeking to purchase stocks. Additionally, the PBOC committed to providing up to 300 billion yuan in low-interest loans to commercial banks to facilitate share purchases and buybacks by publicly listed companies.
Following these announcements, Chinese stocks experienced their strongest weekly performance in nearly 16 years, with momentum continuing into the following week. Reports indicated that the PBOC would instruct banks to reduce mortgage rates for existing home loans before October 31, further aimed at rejuvenating the faltering real estate market.
On Monday, the Chinese stock market recorded its largest single-day gain in 16 years, lifting the blue-chip CSI300 index nearly 30% from its February low, which was driven by concerns regarding the economic outlook of the world’s second-largest economy.
Analysts at Yardeni Research referred to these measures as “twin bazookas,” suggesting they represent a strategy of both “printing money and spending money.” However, there are lingering concerns regarding the sustainability of the stock market rally.
The analysts questioned whether the upswing is a temporary response after a period of extreme pessimism surrounding Chinese equities. They noted, “Time will tell whether these twin bazookas will effectively revive China’s weak consumer demand and struggling property market.”
The analysts emphasized that the true impact of these stimulus measures would likely reflect in the market. As the largest consumer of copper, accounting for over half of global demand, any significant economic moves from China could greatly influence copper prices. So far, copper has responded cautiously, with prices in London dipping below a four-month high of $10,080.50 reached after the initial announcement of new support measures.
Despite the surge in Chinese stocks, the analysts maintained their long-standing advice for investors to remain underweight in Chinese equities while favoring US stocks. They expressed skepticism about a sustained change in consumer spending in China, stating, “We aren’t ready to change our position for now. We continue to believe that Chinese consumer spending will remain structurally weak.”