PBoC’s decision to cut its reserve requirement boosted Chinese H-shares - Rabobank

Analysts at Rabobank note that Chinese H-shares listed in Hong Kong jumped (Chinese mainland markets are closed this week for “Golden Week”) on the back of the PBoC’s decision last Saturday to cut its reserve requirement ratio (effective as from 2018) for banks that provide loans to small business.

Key Quotes

“Banks with at least 1.5% of their loans being for small business would see their RRR cut by 0.5%-points whilst banks with at least 10% of small business loans would get an additional 1%-point cut. The move has surprised markets as it does not seem to fit with the broader aim of the PBoC to rein in leverage, but it may well be a sign that the PBoC are looking for targeted measures to fine tune their policy settings. Moreover, it does chime with the idea that the authorities may want to consolidate the recent yuan decline in order to keep growth at a decent level.”

“The fact that this PBoC decision came alongside a stronger official set of manufacturing and non-manufacturing reports over the weekend (manufacturing PMI +0.7pts to 52.5 and non-manufacturing PMI +2pts to 55.4) provided more fuel for market sentiment and as such was another factor propping up overall market sentiment, making the Spanish political turbulence look even more isolated.”