China stocks jump after reserve rate cut, play catch-up with bullish global markets

China's banking and real estate stocks led the gains as investors responded to People's Bank of China's announcement on Sept 30.
China's banking and real estate stocks led the gains as investors responded to People's Bank of China's announcement on Sept 30.PHOTO: BLOOMBERG

SHANGHAI (REUTERS) - China stocks surged on Monday (Oct 9) on their first trading day after a week-long holiday break, boosted by a reserve rate cut by the country's central bank and further gains in global equity markets.

Both the blue-chip CSI300 index and the Shanghai Composite Index rose nearly 2 per cent at the open before paring some of the gains. By 0230 GMT, they were up 1.8 per cent and 1.1 per cent, respectively.

China's banking and real estate stocks led the gains as investors responded to People's Bank of China's Sept. 30 announcement that it would cut the reserve requirement ratio (RRR) for some banks that meet certain requirements for lending to small business and the agricultural sectors.

The banking index rose 2.1 per cent on expectations the ratio cut will support banks' net interest margins and profit growth in 2018, while the property index climbed 2.7 per cent.

The PBOC said the targeted RRR cut, which goes into effect next year, does not change the general direction of its prudent monetary policy.

Most analysts agreed it does not represent a policy loosening, but investors nevertheless expect the additional liquidity will be good news for stocks and possibly other assets such as real estate.

Analysts' estimates of the additional liquidity from the RRR cut vary widely from 300 billion yuan to 800 billion yuan (S$62-S$164 billion), depending on whether banks ramp up lending to targeted firms to qualify for larger reductions.