And to very little fanfare China\u2019s central bank on Tuesday lopped the top off the country\u2019s key mortgage landing rate in a refreshingly transparent effort to restart its flatlining economy with a shot of property buying direct into the heart of the matter.<\/p>\n
To some mild surprise, but very little reaction, the People\u2019s Bank of China (PBOC) announced that China\u2019s major lenders had cut their 5-year loan prime rate (LPR) by 25 basis points to 3.95%.<\/p>\n
After holding out for\u2026 well, for who knows what, this cut to the cost of borrowing was the first since June last year and more importantly, it was the biggest-ever cut to the key mortgage reference rate.<\/p>\n\n
This means a few things:<\/strong><\/em><\/p>\n Officials have just said bugger it \u2013 let\u2019s get everyone borrowing again, and sort the economy\u2019s structural issues out later.<\/p>\n China\u2019s falling property prices have apparently frog-leaped a bunch of Beijing\u2019s other problems \u2013 which is good, (but which this stimulus might not entirely address.)<\/p>\n There is a hint of panic about how easily officials have returned to the \u2018turn on the taps\u2019 approach to economic encouragement.<\/p>\n \u00a0<\/p>\n According to Fitch, new home sales across China collapsed by as much as 15% last year.<\/p>\n\n Via X<\/em><\/p>\n The headline arrest of property executives, the high-profile developer defaults and the interminable death of property giant China Evergrande has naturally traumatised market participants.<\/p>\n Consumer confidence isn\u2019t the problem, it\u2019s consumer paranoia.<\/p>\n \u00a0<\/p>\n Property was their safety net and it\u2019s got some pretty awful holes in it.<\/p>\n Now, with money tight, the broader domestic economy is replete with people either trying to save or trying to pat debt.<\/p>\n It looks a lot like Japan\u2019s did when a booming Tokyo slid quietly into\u00a0 \u2018balance sheet recession\u2019 and disappeared from the world economic stage for 10 years during its super-weird\u00a0 \u201cLost Decade\u201d.<\/p>\n Already a large swathe of Chinese businesses and consumers are tightening their belts, avoiding silly spending or investing and doubling-down on clearing debt.<\/p>\n That kills liquidity and the domestic economic butter churning but it also means no-one wants to borrow \u2013 not even with the LPR getting slashed.<\/p>\n Hopefully, President Xi Jinping\u2019s fiscal smoke signals will become loud hailers and \u2013 as usually happens \u2013 everyone in China will be singing from the same hymn sheet any day now.<\/p>\n \u00a0<\/p>\n Beijing\u2019s latest efforts to haul its economy out of the post-COVID quagmire follow a humiliating GDP escape last month when the world\u2019s second largest economy barely slipped past narrowly beat its miserly GDP target of 5%, its lowest in decades.<\/p>\n And market watchers fear China\u2019s Year of the Dragon is unlikely to bring the luck it\u2019s supposed to.<\/p>\n Shadow banking is running amok again while the ongoing property market crisis lurches from one bad idea to the next.<\/p>\n Exports are grim and perhaps most problematic \u2013 international investors have been pulling out of Chinese markets with an abandon never before seen.<\/p>\n However James Gerrish at Market Matters<\/a> continues to believe that Beijing will deliver ongoing targeted stimulus through 2024.<\/p>\n The sort of support, he believes, must \u201ceventually stimulate growth.\u201d<\/p>\n \u00a0<\/p>\n The Shanghai Composite rose again on Tuesday, extending gains from the previous session as investors reacted to the PBoC\u00a0 decision.<\/p>\n The market\u2019s been at five-year lows for a while now.<\/p>\n James says the move on the LPR could change all that.<\/p>\n\n \u201cInterestingly, after several false dawns over the last 12-months, the rate cut failed to impress investors \u2013 we believe it might be the very time they should take notice.<\/p>\n \u201cThe cut in the LPR was the largest since the reference rate was introduced in 2019 and far more than expected, but this time, investors sold into any strength on the day as opposed to 24-48 hours after the stimulus, i.e. the Shenzhen CSI 300 index advanced just +0.2%.\u201d<\/p>\n The BofA fund manager\u2019s survey from the 8th of February, showed global players are still very bullish on equities \u2013 most especially tech and the members of Wall Street\u2019s \u201cMagnificent Seven\u201d, but \u2013 James notes \u2013 are also short Chinese equities.<\/p>\n This is in fact the second most crowded position after the array of bullish bets on Messrs Microsoft, Nvidia, Meta et al.<\/p>\n Market Matters maintains its position that it is a a matter of when, not if<\/em>, we see an aggressive squeeze higher by Chinese stocks, which would flow through into Australia\u2019s materials heavy markets.<\/p>\n With iron ore at a three-month low overnight, that narrative is yet to play out.<\/p>\n \u201c(It\u2019s) a bullish read-through for the Resources Sector, that is so far not listening to our view.\u201d<\/p>\n But evil is patient. And so should anyone with an eye on China.<\/p>\n <\/span><\/p>\n The post Chinese equities: The volatility before the storm?<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Property: Beijing\u2019s big problem<\/h2>\n
Chinese consumers are anxious<\/h2>\n
Big Trouble in all the little parts of China<\/h2>\n
The real false dawn<\/h2>\n