Chinese stocks in September had their best week since the 2008 financial crisis after officials unveiled a new set of stimulus measures. The MSCI China Index surged 25% in just the last nine trading days of the third quarter, erasing 20 months’ worth of losses. Unlike other stimulus measures over the previous two years, this one was more comprehensive and included two key financial measures: a 50 basis point cut in the reserve requirement ratio for banks and a 20 basis point drop in the seven-day reverse repo rate.
There were additional measures aimed at boosting the real-estate sector, which rebounded by about 50% in late September, as seen in the chart below. The policy announcements included cutting mortgage rates for existing homeowners by as much as 50 basis points and cutting the down payment requirement for second home purchases by 15%.
For the equity market, there are now 500 billion renminbi swap facilities for brokers and asset managers to fund stock purchases, with regulators announcing another 300 billion renminbi relending facilities to fund share buybacks. This led to a wide rally across most Chinese stocks, but the gains were more prominent in brokers and insurance companies that benefit most directly from these announcements. ∎