China reduces Reserve Requirement Ratio by 50bp

China’s central bank said over the weekend it will lower the reserve requirement ratio (RRR) that banks must hold as reserves to 20.5 percent from 21 percent, effective Friday. This 50 basis points (bp) reduction will free up tens of billions of dollars for loans at a time when the growth rate is expected to drop from last quarter’s 8.9 percent to closer to 8 percent. This is the second rate cut in two months.

Chinese real construction companies, and global commodity stocks, especially base metals like copper and aluminium, should benefit from this move. Investors hoping for more lending in the real estate sector pushed up Chinese property shares and banks. Hong Kong-listed China Resources Land Ltd. rose 1 percent and China Overseas Land & Investment Ltd. added 1.3 percent. China Construction Bank Corp. added 1.1 percent.

World stock markets were also positive on hope that Greece will clinch the aid to avoid bankruptcy. Whether Greece can actually implement and deliver an auterity plan is not a consideration for now!

Among bad news, creude oil prices have moved to a 9 month high near $105 per barrel after Iran said it halted crude exports to Britain and France in an escalation of ongoing dispute over Iran’s nuclear program and US sactions againsst Iran. The US dollar weakened against the euro but was steady against the yen.

The gains followed a solid session in Asia. Japan’s Nikkei 225 index added 1.1 percent to close at 9485, its highest closing level of the year. South Korea’s Kospi rose slightly to 2025. Australia’s S&P/ASX 200 gained 1.4 percent to 4,256. Benchmarks in Singapore, Taiwan and the Philippines also moved up.

Mainland China’s benchmark Shanghai Composite Index climbed 0.3 percent to 2,363 after gaining more than 1 percent earlier in the day, while the Shenzhen Composite Index gained 0.3 percent to 923. In contrast to mainland China’s Shanghai Composite Index, Hong Kong’s Hang Seng Index dropped 0.3 percent to 21,424. Indonesia’s benchmark index also fell.

European shares moved up in trading today. Britain’s FTSE 100 rose 0.6 percent to 5,939. Germany’s DAX added 1.5 percent to 6,950 and France’s CAC-40 gained 0.6 percent 3,460. Markets in the US are closed Monday for Presidents’ Day long weekend. Indian stock markets are closed today, and will open tomorrow after a long 3 day weekend.

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