Beijing’s rescue package fails to boost Chinese stocks
On Sunday, Chinese authorities announced a raft of new measures aimed at boosting China’s ailing stock market. They included:
- Halving tax charged on stock trades.
- Implementing restrictions on share sales by company insiders.
- Encouraging brokerage firms to reduce margin financing requirements.
- Slowing the pace of initial public offerings.
For just a few hours in the Asian morning trade on Monday, it seemed authorities had succeed in boosting market confidence as the key China CSI 300 index, which tracks the performance of the largest mainland Chinese stocks, rallied over 5%.
But the rally was short-lived as investors sold into it, leaving the market flat at the close.
The lacklustre market response to a policy announcement indicating the CCP is indeed intent on seeing Chinese stocks keep pace with the rest of the world, is concerning.
Currently, Chinese stocks trade at their lowest level relative to the SP500 since 2001.
Calls to unleash stimulus continue
So what will it take to reinvigorate the Chinese stock market?
Japanese investment banking giant Nomura provided its perspective on this question in a note to clients on Monday, seen by Asia Markets.
It said Beijing needs to unleash an explosive stimulus program.
“These measures (announced Sunday) need to be followed by measures for supporting the real economy. Without additional more aggressive policy stimulus, these stock market-focused policies alone will have little sustainable positive impact on stock markets, not to mention any positive impact on the economy,” the note said.
Bloomberg Intelligence analyst Marvin Chen has similar views.
“The stamp duty cut shows the urgency for policymakers to turn around market sentiment, but last time this was followed by massive stimulus, which may not be the case this time around,” he said.
“The key for a sustained re-rating is still turning around economic growth momentum, and more policy support will be needed.”