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Russian (RU) (Bloomberg) -- Asian shares rose as a rally fueled by China’s wide-ranging stimulus package lifted equities for a second day and strengthened the yuan.
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Chinese stocks extended gains after the People’s Bank of China on Tuesday unveiled the measures to support the economy and financial markets. The onshore benchmark CSI 300 rose as much as 3.2% and is on track to erase its year-to-date losses. The offshore yuan strengthened past 7 for the first time since May 2023.
From equities to currencies, markets already encouraged by the Fed’s outsized rate cut last week got a boost from the slew of measures announced by China to stimulate its economy, sending the regional gauge around its highest levels since February 2022. Emerging Asian currencies also jumped, led by the Malaysian ringgit and Thai baht.
“The liquidity boost expected from China may have some positive spill-over via commodities and the supply chain, so EM equities and currencies are likely to be boosted,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “The optimism may be raising the bar on follow-through details and measures, so if not substantial enough, things can fizzle.”
Hong Kong’s short sales ratio as a percentage of market turnover dipped to 13.6% on Tuesday, one standard deviation below average since 2016, indicating many shorts have already been covered, according to JPMorgan Chase & Co.
In another potential boost for equities, the People’s Bank of China cut the one-year medium-term lending facility rate to 2% from 2.3%.
“Within Chinese equities, we anticipate near-term support on the stimulus news, contingent on evidence of effective execution,” said Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management. “We expect rate cuts and capital market support to benefit state-owned enterprises concentrated in high-dividend sectors, including utilities, telecoms, energy firms, and financials.”
Support measures unveiled by Chinese authorities Tuesday included interest rate cuts, more cash for banks, bigger incentives to buy homes and plans to consider a stock stabilization fund. However, the efforts may only buy China some time given the scale of challenges facing the economy.
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