Recovery hopes rise in China – Danske Bank

A package of pro-growth initiatives and statements from the Chinese leadership has been well received by equity markets as it raises hopes of a growth recovery, Danske Bank analysts note.

Chinese housing and private consumption growth to improve

“In China, the big news was the announcement of widespread stimulus across a wide range of areas. Lower interest rates, reduced reserve requirements for banks, lower mortgage rates on existing loans and measures to boost the capital market were among the policy initiatives.”

“China’s Politburo leadership also sent a strong signal that the decline in the housing market should stop now and sent a clear pro-growth signal after several years of more moderate signals and stimulus. The news sent Chinese offshore shares soaring, up 25% in seven days, the biggest 7-day gain since 2008, as investors rushed to exit underweight positions in Chinese shares.

“The jury is still out on whether the stimulus will be big enough to turn the tide, but with the strong policy signal, we expect more stimulus to be rolled out if necessary. We now expect to see a gradual improvement in China’s housing and private consumption growth over the next year, and that the two sectors will slowly put the economy on a firmer footing.”