We anticipated a quiet week in the markets, with limited consequential U.S. economic data, but the Chinese government had other plans. They announced a slew of stimulus measures aimed at revitalizing China’s struggling economy. While these actions may offer some support to the property sector, we remain skeptical about their ability to significantly boost the sluggish consumer demand that has been a persistent drag on growth.
Here are some of the key stimulus measures China introduced in the past week:
- Reserve Requirement Ratio (RRR) Cut: The People’s Bank of China (PBOC) reduced the RRR by 0.5 percentage points, releasing approximately $142 billion into the financial system to boost liquidity and lending capacity.
- Interest Rate Reductions: The PBOC lowered the seven-day reverse repo rate by 20 basis points to 1.5% to reduce borrowing costs. The medium-term lending facility rate was also cut by 30 basis points.
- Property Market Measures: Existing home mortgage rates were reduced by 50 basis points, benefiting about 150 million people. Additionally, the minimum down payment requirement for second homes was lowered from 25% to 15%.
- Capital Market Support: Two new monetary tools were introduced, including a $71 billion swap program to help financial institutions access funds for stock purchases and a re-lending facility offering $42.5 billion in cheap loans to fund share buybacks.
- Potential for Further Easing: The PBOC indicated the possibility of additional easing measures in the coming months if global central banks continue their rate-cut trajectories.
Source: Voice of America (VOA)
Watch the quick video for more on this and keep reading below the video to see other market and economic updates from the week.
Thank you for being here,
Denis Rezendes, Portfolio Manager
The “MSCI EM” Index shown in the video is the MSCI Emerging Markets Index. The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries. With 1,328 constituents, the index covers approximately 85% of the free float-adjusted market capitalization in each country. The countries included are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.
Fireside Charts
The Chinese government announced a slew of stimulus measures to prop up the economy over the past week. These announcements sent investors—who had largely abandoned China—rushing back to buy stocks. Looser financial conditions in the U.S. may provide more room for easing in export oriented emerging market countries such as China. Falling mortgage rates in the U.S. are beginning to impact the housing market. Manufacturing and services are telling two different stories about the U.S. economy. S&P 500 earnings growth. AI capital spending.
- Chinese stocks have responded positively to the stimulus measures, but past gains have been short lived:
Source: @JeffreyKleintop
- India recently overtook China as the largest country weight in the MSCI Emerging Market Index:
Source: Gavekal Research
- Indian equities have outpaced those of other countries over the past year:
Source: The Daily Shot 9/23/2024
- Falling interest rates further out on the yield curve have had a bigger impact than the recent rate cut on easing financial conditions:
Source: The Daily Shot 9/23/2024
- With rate buydowns and incentives, the rate on some new homes may now be below 5%:
Source: The Daily Shot 9/23/2024
- Plans to purchase a home in the next 6 months jumped in September:
Source: The Daily Shot 9/25/2024
- U.S. Manufacturers are reporting worse business conditions:
Source: The Daily Shot 9/24/2024
- Thankfully, services are a much larger component of the U.S. economy:
Source: The Daily Shot 9/24/2024
- Analysts believe the S&P 500’s “earnings recession” has come to an end, and are projecting 18% earnings per share (EPS) growth by the end of 2025:
Source: BofA Global Research
- Capital spending among AI hyperscalers in the U.S. is now running at over $50 billion per quarter:
Source: @WSJ Read full article
By Denis Rezendes, CFA, Partner, Portfolio Manager
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The federal funds rate is the interest rate at which banks lend money to each other overnight. A treasury yield is the interest rate the U.S. government pays on its debt, and the annual return that investors can expect from holding a U.S. government security.
The Hang Seng Index is a benchmark that reflects the performance of the largest companies listed on the Hong Kong Stock Exchange, providing insights into the health of the Hong Kong economy. The MSCI EM Index measures the equity market performance of emerging markets globally, helping investors gauge investment opportunities and risks in developing economies. The Daily Shot US Financial Conditions Index is a composite indicator that assesses the overall financial conditions in the U.S., incorporating various factors like interest rates and credit spreads to provide insights into market liquidity and risk. The S&P Global US Manufacturing PMI (Purchasing Managers’ Index) measures the economic health of the manufacturing sector by surveying purchasing managers about business conditions, while the S&P Global US Services PMI focuses on the services sector, similarly gauging economic activity based on responses from service sector managers. Earnings per share (EPS) is a financial metric calculated by dividing a company’s net income by its outstanding shares, indicating the profitability of a company on a per-share basis.
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