20220419-招银国际-Small_RRR_cut_shows_PBOC_s_modest_easing_stance_6页_932kb

China Policy Summary

Core Content

The document discusses the recent monetary policy adjustments in China, focusing on the People's Bank of China (PBOC) decision to cut the Reserve Requirement Ratio (RRR) and the implications for the financial market and economy. It also highlights the impact of the epidemic and the potential policy changes related to the "Covid-zero" strategy.

Main Views

• RRR Cut: The PBOC cut the RRR by 0.25ppt for most banks and by 0.5ppt for city and rural small banks. This move is expected to increase liquidity supply by RMB530bn and reduce banks' funding costs by RMB6.5bn.
• Monetary Policy Stance: The central bank is adopting a modest easing path, with limited room for further RRR cuts and a low likelihood of Loan Prime Rate (LPR) reductions in the near term.
• Structural Policies: To support targeted sectors, the PBOC will implement structural policies to boost credit supply and lower financing costs, especially for small businesses, agriculture, and high-tech enterprises.
• Market Reaction: The stock market has already priced in the RRR cut and structural policy easing. The A-share market saw a strong rally last week, while the HK stock market showed mixed performance.
• Epidemic Impact: The situation in Shanghai may have reached its peak in terms of new cases, which could support a rebound in consumer service-related stocks. The central bank will review the lessons from the epidemic to adjust the "Covid-zero" policy, with implications for the market in the second quarter of 2022.
• Policy Uncertainty: The dynamics of the virus control policy will remain a key factor influencing the short-term economic outlook and stock market performance.

Key Information

RRR Cut Details

• Date of announcement: April 15, 2022
• Effective date: April 25, 2022
• RRR change: 0.25ppt for most banks, 0.5ppt for city & rural small banks
• Weighted average RRR: Reduced from 8.4% to 8.1%
• Incremental liquidity: RMB530bn

Structural Policies

• Encourage large banks to lower provision ratios to increase lending capacity.
• Enhance credit support to service sectors, SMEs, and individual businesses impacted by the epidemic.
• Special low-cost refinancing facilities will be used to stimulate credit supply to small businesses, agriculture, and carbon reduction projects.
• Two new mechanisms will be introduced to support high-tech enterprises and elderly care services.

Market Implications

• Loan contract rates face downside pressure due to credit supply-demand dynamics.
• New mortgage rates dropped by 20-60bps in over 100 cities from March.
• Banks' deposit rates are being encouraged to be lowered, which may lead to future reductions in loan contract rates.
• Stock market reaction: The market has already priced in the RRR cut and structural easing, with some sectors like energy, real estate, and financials performing well.

Figures Summary

• Figure 1: RRR cuts from 2021 show a trend of decreasing RRR and increasing liquidity.
• Figure 2: Banks' effective RRR and excess reserve ratio indicate a moderate liquidity stance.
• Figure 3: PBOC's claims to banks and reserve levels suggest a focus on maintaining financial stability.
• Figure 4: Liquidity condition and M2 supply growth reflect a stable but cautious monetary environment.
• Figure 5: Outstanding loan rates show downward pressure.
• Figure 6: Credit and M2 supply growth highlights a moderate expansion in credit.
• Figure 7: Leading indicators for the business cycle suggest a potential slowdown.
• Figure 8: Growth in passenger and freight volume reflects economic activity.
• Figure 9: Housing sales growth by cities indicates regional differences.
• Figure 10: Land sales data reflects market dynamics.
• Figure 11: Land income and infrastructure investment show mixed trends.
• Figure 12: US$/RMB exchange rates and interest spreads reflect external economic conditions.
• Figure 13: Growth divergence drives RMB/US$ exchange rate movements.
• Figure 14: China's bond rates suggest a stable but cautious market.
• Figure 15: Forex flows into China reflect investor sentiment.
• Figure 16: A-share performance over 5 days shows a positive response to RRR cuts.
• Figure 17: HK stock performance over 5 days indicates a mixed market reaction.

Analyst Certification

• The analyst certifies that the views expressed accurately reflect their personal views and that there is no direct or indirect compensation link to the views in the report.
• The analyst confirms no trading in covered stocks within 30 days prior to the report's release, and no trading for 3 business days after.

CMBIG Ratings

• BUY: Potential return of over 15% over the next 12 months.
• HOLD: Potential return of +15% to -10% over the next 12 months.
• SELL: Potential loss of over 10% over the next 12 months.
• NOT RATED: Stock is not rated by CMBIGM.

Industry Ratings

• OUTPERFORM: Industry expected to outperform the broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the broad market benchmark.

Disclaimer

• The report contains general information and does not constitute investment advice.
• The information is based on publicly available data and is not guaranteed for accuracy or completeness.
• The report may not be reproduced or distributed without prior written consent.
• CMBIGM may have conflicts of interest and is not liable for any losses arising from reliance on the report.

Legal Information

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• In the U.S., the report is intended for major institutional investors only.
• In Singapore, the report is distributed by CMBISG, an exempt financial adviser.