[Click eStock] "Chinese Stock Market, Bottoming Theory Emerges... Must Accompany Additional Stimulus Measures"

As the People's Bank of China (PBoC) activates a stimulus package, securities analysts predict that the previously subdued investment sentiment will improve. However, additional fiscal spending expansion appears necessary for a noticeable economic rebound.

On the 25th, Shin Seung-woong, a researcher at Shinhan Investment Corp., stated, "The PBoC has launched a stimulus package. With a combination of monetary policy, real estate support, and stock market stabilization?the policies the market has long desired?extremely contracted investment sentiment is expected to improve significantly."

First, the PBoC decided to cut both the policy interest rate and the reserve requirement ratio. Researcher Shin explained, "By lowering the reserve requirement ratio by 50bp (1bp = 0.01 percentage points), liquidity worth 1 trillion yuan (approximately 190 trillion KRW) will be supplied, and an additional 25?50bp cut is indicated within the year. Flexible policy implementation is expected in response to uncertainties following the U.S. presidential election in November."

Real estate stimulus measures will also be strengthened. To reduce household interest burdens and boost consumption, the average mortgage loan interest rate on existing homes is planned to be lowered by 50bp. Efforts will also be made to support the stock market. New monetary policy tools for capital market support, liquidity support secured by financial institution assets (about 95 trillion KRW), and refinancing support for share buybacks (about 57 trillion KRW) have been announced.

However, Researcher Shin noted, "Considering that the effects of monetary policy typically take one to two quarters or more to materialize, expecting a V-shaped economic rebound is difficult. This is why fiscal spending expansion through supplementary budgets must accompany the measures."

For the fourth quarter, the Shanghai Composite Index band was projected at 2650?3050 points. Researcher Shin added, "Although pessimism still prevails, bottoming theories are gradually emerging. A strong technical rebound is expected with 2700 points as a solid support level," and "This is a phase where additional government stimulus measures can also be anticipated. From a style perspective, we recommend compressing portfolios into dividend stocks (utilities, banks) and high-beta growth stocks (information technology, secondary batteries, healthcare). Hong Kong’s Hang Seng Tech is also a good alternative for growth stocks."