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China recently introduced a new economic stimulus package in September 2024, raising discussions on its potential impact on the country’s slowing economy.
Described as a “monetary easing cocktail,” the package includes rate cuts, reduced mortgage costs, and liquidity injections to stabilize financial markets. However, analysts believe that while these measures are wide-reaching, they may not be enough to drive a significant recovery due to unresolved structural challenges.
The key components of the stimulus package include a reduction in the Reserve Requirement Ratio for banks, a cut to the 7-day reverse repo rate, trimming of mortgage rates, a support package for equity purchases, and financing for converting unsold residential units into low-cost rental housing.
Despite these efforts, doubts remain about the package’s ability to boost the broader economy. While some households may benefit from lower mortgage rates, the overall impact on personal consumption is expected to be modest. Furthermore, weak job prospects and stagnant wages pose challenges for household spending.
Additionally, despite increased bank liquidity, the demand for loans remains weak, with deflationary pressures and falling property prices hindering credit demand. Local governments are also constrained in driving growth due to increased caution and reluctance to initiate new projects.
Analysts argue that more aggressive measures are needed to address the current economic challenges, including large-scale quantitative easing and fiscal transfers to households. Without comprehensive policies, a significant recovery is unlikely in the near term.
Investors are advised to remain cautious, with the stimulus potentially providing temporary support to the stock market. While onshore Chinese equities may see some opportunities, global market conditions and geopolitical risks could limit upside potential. As such, a neutral stance on offshore Chinese Stocks is recommended, especially for absolute-return investors during a risk-off phase.
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SOURCE
Emma Collins, graduated in Financial Economics from the University of Chicago in the USA in 2016. She has since worked at an asset management firm in New York, where she specializes in investment strategies and portfolio management. Emma has a keen interest in financial analysis and has published several articles in renowned financial journals. Her work focuses on providing actionable insights to investors, and she is known for her forward-thinking approach to managing financial portfolios.
