SHANGHAI: China stocks rallied for a third straight session on Thursday, after the country’s central bank announced supportive policies including a deep cut to bank reserves to spur a fragile economy and prop up tumbling share markets.
The People’s Bank of China (PBOC) on Wednesday announced a 50-basis points (bps) cut in the amount of cash banks must hold as reserves from Feb. 5.
It was the biggest such cut in two years and will inject about $140 billion of cash into the banking system. China’s blue-chip CSI300 Index climbed 1.3% and Hong Kong’s Hang Seng benchmark was up 1.4% by the midday recess.
China’s yuan held steady against the US dollar.
The three sessions of rebound came after the blue chip index hit a five-year low last week as the world’s second-largest economy struggles with a fragile post-pandemic recovery, heavy local government debts and a weak property sector.
The PBOC on Wednesday also said it is widening the uses for commercial property lending by banks in its latest effort to ease a liquidity crunch facing troubled real estate firms.
“The latest PBOC announcements may be interpreted as the beginning of a policy pivot from previous reactive and piecemeal measures by investors, and they will continue to look for further signs and acts of policy support,” said Tao Wang, chief China economist at UBS Investment Bank.
Shares in real estate developers, infrastructure and communications jumped between 3.5% and 5% to lead the gains.
Foreign investors bought a net 4.4 billion yuan ($614.53 million) of Chinese shares via the Stock Connect so far on the day.
Beijing’s support pledges scrape China stocks from lows
State-owned enterprise stocks also shone, after an official of the Assets Supervision and Administration Commission of the State Council said China will include the effectiveness of market value management within the assessment of leaders of central state-owned enterprises.
The CSI Central State-owned Enterprises Composite Index jumped 2.8%, with China National Accord Medicines Corp and COFCO Capital Holdings both up by their 10% daily limits.
Still, Ting Lu, chief China economist at Nomura, belives more effective government support measures need to be taken and the latest economic dip is likely to worsen into the spring.
“We believe in the near term, the most effective policy is for Beijing to set up a special fund, perhaps with money directly from the PBOC (so it will be something like a quantitative easing), to help build delayed homes which are behind delivery schedule,” he said.
In Hong Kong, tech giants added 0.7% and mainland property developers surged 3.7%.
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