The unveiling of a range of stimulus measures in Beijing undoubtedly took first place as highlight of the week. The local A share market climbed by 15.7% whilst in Hong Kong the Hang Seng was up 13%.
The stimulus measures that induced the sharp market increases included a half percent cut to the reserve requirement ratio at the People’s Bank of China (PBOC), a 0.3% to the medium term lending facility rate – which is the largest cut to this element of monetary policy since it began using it to guide markets in 2016. There was also a cut to existing residential mortgages and reduced the down payment for second properties from 25% to 15%.
There were also direct injections of liquidity – firstly 800 billion yuan to stabilise the equity market (and a potential equity stabilisation fund); one trillion yuan into the largest banks to increase capacity to support the economy. Finally – the government could potentially distribute financial aid directly to the disadvantaged during their upcoming public holiday, Golden week, which sees Chinese markets closed for the first 7 days of October.
Closer to home UK & European markets also saw positive returns with the FTSE All Share up 1.3% and Europe excluding the UK even more positive at 2.4%.
The UK had the positive backdrop of continuing expansion in the services and manufacturing sectors, although the rate of expansion did slow a touch. In Europe we saw interest rate cuts from Sweden and Switzerland.
Not to be left out, US markets moved to record highs during the week as they also salivated over the stimulus in China. Basic materials was the standout sector on hopes for a rebound in Chinese demand. There was also some positive news for technology investors as Nvidia’s CEO has ceased the sale of his own shares, however this was somewhat mitigated by Beijing stepping up the pressure on Chinese companies to buy chips locally.
Initial jobless claims came in a touch below expectations at 218,000 whilst inflation came in at 2.2% annualised which is close to the Federal Reserve’s (FED) 2% target. All eyes remain on the FED for any signs of further rate cuts.
Heading back to Asia – Japan also had a stellar week with the Japanese FTSE up 4.7% with the latest commentary from the Bank of Japan (BOJ) seen as negative for the yen – giving support to the export heavy market. Japan is also a significant exporter to China. Just in case there hasn’t been enough political discussion, on Friday Shigeru Ishiba won the Liberal Democratic Party leadership contest and will therefore become Japan’s next prime minister.
Against all of this positivity, bond markets were rather becalmed, whilst currencies were slightly more interesting – the pound continued a recent run of strength and is within a whisker of 1.35 to the dollar and 1.20 to the euro, unimaginable back in the depths of 2022.
Paul Surguy – Managing Director, Head of Investment Management