Chinese equities rally as Beijing moves to bolster economy

Chinese equities rallied on Friday following a series of moves by Beijing intended to bolster the country’s ailing economy, including a further cut to a key interest rate.

On Friday, the People’s Bank of China trimmed the benchmark interest rate on seven-day reverse repurchase agreement by 20 basis points to 1.5%.

In a statement, the central bank said the cut was intended to "further strengthen counter-cyclical adjustment of monetary policy and support stable growth of the economy".

It also reduced the amount of cash banks must hold as reserves - the reserve requirement ratio (RRR) - by 50bps, which is expected to release around 1trn yuan (£106bn) of liquidity into the banking system.

That followed an announcement on Tuesday of a $114bn lending pool for the country’s capital markets, to encourage companies to buy shares.

As at 1000 BST, both Shanghai’s CSI 300 and Hong Kong’s Hang Seng index were up 4%. The CSI 300 has now put on nearly 16% this week and the Hang Seng 13%.

China’s economy, the second largest after the US, has struggled to gain momentum since the pandemic. One of the last countries to abandon strict lockdowns, it has been hamstrung by sluggish global demand, weak domestic consumption and a crisis-hit property sector.

Prior to this week’s financial stimulus, concerns were mounting that the economy would fail to meet the central bank’s already modest growth target of 5% this year.

Russ Mould, investment direct at AJ Bell, said: "A veritable feast of economic stimulus measures has led investors to take a more optimistic view of the earnings potential for Chinese companies and foreign ones selling into the country.

"On paper, it looks interesting. But whether the desired results end up meeting investors’ expectations is another thing. China is notorious for throwing stimulus measures left, right and centre, and the success rate is patchy, to say the least."