Home

Investors skeptical as China's rate cut and share buyback move fail to boost markets

PUBLISHED

2023-08-22

Content

Investors in Hong Kong and mainland China have expressed disappointment following the People's Bank of China's (PBoC) modest rate cut and the country's securities regulator's push for share buybacks among Chinese listed companies. The moves failed to provide the expected boost to the economy and stock markets, leading to a drop in markets in China and Hong Kong to 9-month lows.

On Monday, China's central bank, the PBoC, lowered the one-year loan prime rate by a mere 10 basis points from 3.55% to 3.45%. This cut was seen as a half-hearted attempt to stimulate the economy, especially when compared to the 0.15% cut in another key rate the previous week. In an unexpected move, the PBoC left the five-year loan prime rate unchanged at 4.2%, contrary to economists' expectations of a 15 basis point cut.

The move was met with skepticism among investors, causing markets to continue their decline for another day. In response, the Hang Seng Index in Hong Kong fell by 1.8%, while the Shanghai market dropped by 1.2%. Additionally, the CSI 300 index, which comprises blue-chip stocks, witnessed a decline of over 1.4%.

Reflecting this pessimism, Goldman Sachs revised its forecast for Chinese stocks, anticipating a lower trading range until more substantial responses to the housing market challenges are put forth.

Investors also displayed skepticism towards the flood of share buyback announcements made by numerous Chinese listed companies over the weekend. These buyback plans were disclosed following a call by China's top sharemarket regulator to support the market and provide more funds to investors. However, these announcements did little to boost investor confidence, with markets remaining wary.

The regulatory measures introduced to bolster investor confidence included reducing trading costs, supporting share buybacks, and encouraging long-term investment. Despite these efforts, investors appear to be waiting for more comprehensive measures to address capital adequacy and solvency issues before confidence and activity levels can be fully restored.

Analysts suggest that the modest rate cut might be indicative of Chinese authorities' concerns about potential yuan depreciation and capital flight. The limited scope for monetary easing could stem from worries about currency market stability, preventing more significant rate cuts from being implemented.

The market's response underscores broader concerns about the effectiveness of China's policy guidance in the face of economic challenges. Investors are keenly observing the government's strategies to manage the economic slowdown, with expectations for more comprehensive actions to revive market sentiment and activity levels.

Author