Here’s everything you need to know about China’s stimulus from Investing.com

Investing.com — China recently announced its first major coordinated monetary easing in years, which includes cuts in the required reserve ratio (RRR) and interest rates, as well as adjustments to property-related policies such as rate cuts mortgage and lower down payment rates.

Measures to stimulate stock market liquidity through swap and credit facilities were also introduced, along with efforts to strengthen bank capitalization.

Looking ahead, the focus is expected to shift more to fiscal stimulus alongside monetary measures to boost demand through increased consumption and investment, stabilize the housing sector and address balance sheet issues, Bank analysts said of America.

Key areas of focus for the consumer sector include social security, health care and pro-birth policies such as allowances for families with more children and low-income households. Consumer coupons are being discussed, although widespread nationwide distribution is not anticipated in the near term.

BofA notes that this is the worst consumer downturn since China’s entry into the World Trade Organization, driven by wealth destruction estimated at around RMB 60 trillion (~$8.6 trillion) in the real estate sector alone in 2021. Other contributing factors include a record low. consumer confidence, weak business sentiment, sluggish job markets, stagnant wages, deleveraging and an aging population.

According to BofA analysts, the biggest impact of China’s measures is the short-term wealth effect, with the rise in the A-share market increasing market capitalization by RMB 17.3 trillion as of September 23, as well as short-term support for sentiment. and expectations.

However, analysts caution that a significant increase in overall consumption is not immediately expected, “except for exchange subsidies in certain segments previously announced”.

As for the timetable for a full recovery in consumption, BofA analysts note that it will take time and depend on the effectiveness of policies. They point out that “history suggests that each major consumer cutback cycle normally lasts 3.5-4 years, and we are only 2.5 years into the current cycle.”

“Policies need to be decisive given the massive wealth destruction and property unrest ahead,” the analysts added.

“We believe a huge amount of work needs to be done to repair confidence/expectations, especially amid frequent shocks from domestic politics and external geopolitics. Otherwise, people might consider the current window just another false dawn.”

In terms of global brand implications, analysts believe these brands may initially benefit from China’s recovery through share price gains and a potential wealth effect that boosts consumer confidence, particularly in the luxury and beauty sectors. However, assumptions of a quick recovery may be premature.

Policies may favor domestic brands as they are more relevant to mainstream consumers. In addition, global brands face increasing competition from local brands and must adapt with the right products, pricing and agility to navigate channel disruptions for sustained success.