China's Strong Economic Stimulus Commitment Sparks Rare Surge in Mainland and Hong Kong Stock Markets

‘Doctor Copper’ Copper Gift Soars 2%

China's mainland and Hong Kong stock markets surged after the country decided to inject strong liquidity into the market by lowering the bank reserve requirement ratio (RRR) to overcome the recent economic slowdown.

The CSI 300 Index, composed of the top 300 stocks by market capitalization on the Shanghai and Shenzhen stock exchanges, rose 2.40% as of 1:18 PM on the 24th. At the same time, the Hong Kong Hang Seng Index and the H-Share Index were up 3.28% and 4.03%, respectively.

China's mainland and Hong Kong stock markets, which had been on a downward trend for years due to domestic and international headwinds such as economic sluggishness and escalating US-China tensions, appeared to rebound earlier this year thanks to large-scale stimulus measures by Chinese authorities. However, concerns over prolonged real estate downturns leading to weakened consumer and investment sentiment had caused most of the recent gains to be given back.

Analysts interpret China's renewed strong commitment to economic stimulus, aiming for around 5% growth this year, as a positive factor for the stock markets.

On the same day, the People's Bank of China announced plans to lower the reserve requirement ratio by 0.5 percentage points soon, injecting 1 trillion yuan of long-term liquidity into the financial market. It also stated it would cut the policy rate on 7-day reverse repurchase agreements (reverse repos) from the current 1.7% to 1.5%, a 0.2 percentage point reduction. Additionally, the central bank revealed plans to align existing mortgage loan rates with new mortgage loan rates.

Tony Sikamore, a market analyst at IG Australia, said, "The announcement by Chinese authorities today will help remove downside risks to China's growth and end the downward trend in the Chinese real estate market observed over the past 15 months."

However, experts believe that continuous support measures are necessary for the financial markets to sustain long-term gains in overcoming China's economic slowdown. Si Guo Qian, portfolio manager at RBC BlueBay, noted, "This move indicates that Chinese authorities understand and acknowledge the urgency of boosting sentiment in the stock and housing markets," but added, "More long-term fiscal support from the authorities will be needed for further market gains."

Meanwhile, copper futures prices rose more than 2% on the day. Copper, widely used across industries, is known as "Dr. Copper" for its role as a leading indicator of the real economy. The yield on China's 10-year government bonds fell to an intraday record low of 2.023% but later recovered to 2.061%.