China policy support gains momentum

The PBoC monetary policy and policy to support equity markets and valuation are supportive of Chinese equities. Hong Kong-listed shares are preferrable.The room for monetary policy easing remains high, as the inflation and growth mix has remained benign.


Chinese policy makers have already loosened policy significantly. The reserve requirement ratio for major banks now stands at 18.5% vs a level of 20% a year back, and a peak of 21.5% in June 2011, while recently (27 June 2015) the PBoC reduced the RRR another 50bp for selected banks, though this was not a system-wide cut.

The interest rate in the interbank market has fallen from about 2.9% to 2.45% over the past 20 days. The PBoC has also cut the one-year benchmark lending rate by 25bp to 4.85%, though the effectiveness of this tool has declined. 

"More policy measures might come in Q4 2015", says Societe Generale.