The markets, which did not find the new policies implemented by China to stimulate the economy enough, started the day mixed. The Asian giant decided to implement the long-awaited rate cuts last week. The move of the central bank, which made a 10-bp discount on five-year loans, did not satisfy the investors. The Jinping government, which met on June 16 to discuss economic incentives after the interest rate decision, could not sign a concrete decision either.
After these developments, while the markets were watching with sellers, experts began to interpret China’s moves.
“Insufficient Interest Rate”
Redmond Wong, Saxo Markets’ China strategist, stated that the 10bp discount will have no effect. According to Wong, to stimulate the real estate market, the People’s Bank of China needed to lower funding rates by at least 15bps.
The Chinese housing market has been in stagnation for a long time. The country’s real estate giant Evergrande was on the verge of bankruptcy at the end of 2021. The real estate index with the code .CSI931775 dropped 1.40% just this morning.
“Chinese Economy is in Trouble”
Speaking to the financial press after the interest rate cut, the famous macroeconomist Aidan Yao thinks that it is difficult for the Chinese economy to get out of this situation. Yao, who previously worked at AXA Investment, stated that the liquidity is in bank deposits rather than in free circulation. While this situation leads to the continuation of the collapse in the housing market, it also poses other risks.
National Australia Bank Strategist Rodrigo Catril is not so pessimistic. Catril looks forward to the China Politburo meeting, which will be chaired by Jinping in July, for new incentives.
The ongoing economic problems in the Asian giant are not limited to housing. Most of the experts frequently refer to the risk of youth unemployment and deflation in the upcoming period.
Latest Situation in the Markets
Asian indices, which started trading for the first time, are mixed as of now. Japan and Australia markets remained positive, while other regions were on the negative side.
MSCI Asia Index (excluding Japan) has lost 0.67% of its value since the beginning of the day.
Equity indices in Europe, on the other hand, are moderately receptive. German stock DAX continues the day with -0.25%. However, a positive horizontal outlook prevails in Italy, Spain, England and Italy.
