China – Dovish Monetary Policies | Harris Fraser
Research Insights
19 November, 2019
China – Dovish Monetary Policies

The Chinese stock markets continued the rise in October. The CSI 300 Index and the Shanghai Composite Index were up 1.89% (3.48% in USD) and 0.82% (2.39% in USD) respectively, while the Hang Seng Index rose 3.12% (3.14% in USD).

The economic indicators remains mixed, with the official manufacturing PMI dropping to 49.3, staying below the 50 level for 5 consecutive months, while the Caixin manufacturing PMI continued to improve. Industrial production remained resilient, but industrial profits continued to fall. The October PPI stayed negative, falling for 4 consecutive months, dealing further blows to the exporting sectors. The weakening profitability of the manufacturing industry continues to post a threat to the sector moving forward even though the trade conflict are showing signs of resolution.

As for China’s GDP growth, it continues to slowdown in Q3, continuing the trend since 2017 Q2, so there is speculation that there would be more policies in the near future to further boost the local economy. The PBOC announced a new round of Medium-term Loan Facilities (MLF) amounting to 400 billion CNY, matching the recently ended round of MLF in nominal amount, but lowered the interest rate for the first time in 3 years from 3.3% to 3.25%. The MLF interest rate cut carries a great significance as a number of other financing policies are derived from the rate as a benchmark, the cut could help further stimulate the economy. It is also expected that the PBOC would cut reserve ratios in the near future, the further loosening monetary policy could improve the general business environment and provide support to the markets. That said, Investors should continue to stay cautious as clouds are yet to clear regarding the trade conflict and economic slowdown.

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