PBoC rate cuts unlikely to prevent a decline in Chinese equities: Capital Economics

Quotes from Capital Economics:

- The reaction of Chinese equity markets to the PBOC 25bp interest rate cuts on Saturday has so far been limited. Indeed, it is striking that the Shanghai Composite Index closed less than 0.8% higher on Monday. After all, the index surged by nearly 28% in the month after the PBOC reduced rates in November. 

- It is possible that the majority of the market reaction is yet to come and that the index will make substantial gains in the coming weeks. But we think it is more likely that it will decline.

- We remain comfortable with our forecast for the Shanghai Composite to end the year at 3,000, which would represent a drop of over 10% from current levels.