China stimulus package better than expected. China regulators have announced an extraordinary robust set of stimulus measures, including reserve requirement ratio (RRR) cuts, support for property markets, and low-cost facilities to boost the stock market. The People’s Bank of China (PBOC) delivered a series of policy rate cuts, and the Politburo’s call for “forceful” rate reductions signals further easing ahead. The PBOC has also revised down outstanding mortgage rates by c.50 bps to support the property sector and consumer sentiment. Although China’s banks will face a 5-6 bps decline in net interest margins (NIM) due to the repricing of existing mortgages, this impact is mitigated by lower funding costs, increased loan volume, and growth in capital market-related fee income. As a result, we expect a neutral overall impact on banks' NIM and earnings.

A-share market energised. The PBOC has also introduced several measures to support the stock market, including a swap facility that enables securities firms, funds, and insurers to access PBOC liquidity for equity purchases, and a re-lending facility that allows listed companies to buy back shares and increase their holdings. The initial phase of these initiatives amounts to RMB800bn. These measures are expected to inject additional funds into the stock market, signalling the central government's strong commitment to bolstering the economy and improving market sentiment in the short term. Both brokers and insurers stand to benefit from the recent market rally, as increased trading volumes and fund inflows into mutual funds boost brokers' fee income, while rising stock values generate gains for both brokers and insurers.

Despite the recent market rally when the policy measures were first announced, valuations are still appealing. The anticipated fiscal stimulus could drive short-term price appreciation, while the policy measures’ long-term effects — reflected in sustained improvements in macroeconomic data and consumer confidence — should underpin a longer-term re-rating of the stock market, especially financial stocks.

Source: Bloomberg, DBS

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