China’s new stimulus plans rattle global markets By Reuters

LONDON (Reuters) – Assets exposed to China rose on Tuesday after Beijing announced its biggest post-pandemic stimulus in a bid to pull the world’s second-largest economy out of a deflationary funk that has rocked currency and stock markets. global actions this year.

The broader-than-expected package offers more financing and interest rate cuts.

European shares, emerging market currencies and commodities got the news, but analysts questioned how effective it would be in the long run given extremely weak demand for credit from domestic businesses and consumers.

Here we look at five places where China’s economic weakness has been particularly felt, and what these new measures could mean.

FOR THE UNDERGROUND

Mining stocks were the biggest gainers in Europe and Australia on Tuesday.

“Stimulus may support property markets more than consumption or broader industrial activity, and so it’s no surprise that depressed mining stocks are outperforming,” said Gerry Fowler, head of European equity strategy at UBS.

“It remains to be seen whether these measures are enough to ignite more optimism in the private sector. History would suggest that fiscal measures are more effective than monetary measures.”

An index of European mining shares rose 4.6 percent for its biggest daily gain in two years, while Australian mining stocks rose 2.8 percent for their biggest daily gain in a year.

Both have been under pressure in recent months.

HEY, BIG CHILLERS

Shares of European luxury retailers, popular with China’s once high-spending urban middle-class professionals, have been among the most obvious victims of economic weakness in the world’s second-largest economy.

A benchmark of European luxury shares is down 4.2% year to date, compared with a 7.7% rise in .

However, the same benchmark rose 3% on Tuesday amid the new measures. If sustained, it would be the biggest one-day jump since January.

Analysts at RBC say that in the luxury sector, Swatch Group ( SIX: ), Burberry and Richemont’s revenues are most exposed to China. Their shares rose between 2 and 5 percent on Tuesday.

US stocks reacted less than European ones, down 0.1 percent at 1455 GMT.

“There, you have an economy that is much less geared to China’s demand, in Europe that kind of gearing is much more,” noted Andreas Bruckner, European equity strategist at Bank of America.

TRADE IN DEUTSCHLAND

China is Germany’s second-largest trading partner after the United States, so many of its companies have suffered as demand for cars and machinery has weakened while competition from domestic Chinese rivals has increased, a further drag for an economy that has already escaped the energy crisis triggered by the Russian invasion. of Ukraine.

If China’s new measures help stabilize the housing market, this would have a particularly positive impact on the German chemical sector, said Uwe Hohmann, equity strategist at Metzler Capital Markets.

German automakers such as Volkswagen (ETR: ) and BMW (ETR: ) and auto parts suppliers face more of a structural problem due to competition with local rivals, and therefore a market stabilization would affect them less , Hohmann said.

EXPORTERS OF GOODS

China has been a growth engine for emerging markets near and far, especially absorbing their goods and oil exports in boom times whenever the world’s number two economy takes a hit.

But this time may be different.

“There is no major fiscal stimulus yet that directly targets the anemic consumer, which remains the key constraint,” said Tellimer’s Hasnain Malik. “Therefore, the package again falls short of the ‘bazooka’ stimulus, which will alter the outlook for global commodity demand.”

However, economies that are geographically closer to China and have close trade ties with the country could see some tailwinds – as could those holding domestic government bonds, said Charu Chanana, strategist at Saxo Markets in Singapore.

The stimulus also comes on the back of a very large interest rate cut by the US Federal Reserve, which generally marks a sweet spot for emerging economies.

ANOTHER FX PERSPECTIVE

hit its highest level in 16 months, defying the conventional pull of gravity in the foreign exchange market, where lower stimulus and rates tend to translate into a weaker currency.

But the prospect of a boost to the country’s massive economy and its markets is enough to make people flock.

China-sensitive currencies such as the euro, the Australian dollar and the Malaysian ringgit – which hit three-year highs after Beijing’s burst of stimulus – are all likely to rally against the greenback as investors favor more cyclical currencies.

But the “reflection trading pair,” the euro versus the dollar, could act as a better measure of how successful investors think China’s efforts are, according to a number of analysts.

Euro/Aussie rose on Tuesday on a change in expectations for the Australian rate, but trended lower, down 5.5% in seven weeks, compared to a 1.6% rise in Euro/Dollar and a 0 .8% of the euro/yuan onshore.