"China is injecting $150 billion into its economy"

" \n China\u2019s move to cut the amount of funds banks need to hold in reserve could boost market sentiment \u2014 and that could be good news for stocks in certain sectors, according to investment bank UBS. \n \n\n \n The\u00a0People\u2019s Bank of China\u00a0said Friday it would\u00a0cut the reserve requirement ratio (RRR)\u00a0by 50 basis points for all banks, effective from July 15.\u00a0The move is expected to release around 1 trillion yuan (or $154 billion) in long-term liquidity into the economy. \n \n\n \n The reserve requirement represents the amount of money that banks must hold in their coffers as a proportion of their total deposits. A lowering of that required amount will increase the supply of money that banks can lend to businesses and individuals. \n \n\n \n \u201cWe think this broad-based RRR cut could boost market sentiment in the short term and improve stock market liquidity,\u201d UBS analysts Lei Meng and Eric Lin said in a note on Monday. \n \n\n \n Winners and losers \n \n\n \n In the short term, the move could boost liquidity-sensitive sectors, such as aerospace and defense, electronics, IT and media, according to UBS. \n \n\n \n Companies with strong earnings expectations could also outperform, UBS said, citing sectors such as electric vehicles and batteries, and the new energy sector. \n \n\n \n However, the market rally may be short-lived given concerns over China\u2019s slowing economic growth, the bank indicated. \n \n\n \n \u201cThe RRR cut has, to some extent, added to equity investors\u2019 concerns that the economic recovery in Q2-Q3 (this year) may not be as good as the market expected,\u201d the UBS analysts wrote. \u201cIn our view, in the absence of a directional shift to monetary policy loosening, the additional liquidity will not drive a sustained market rally.\u201d \n \n\n \n UBS analysts pointed out that investors\u2019 are worried about the weakening pace of China\u2019s economic recovery in the second and third quarter this year \u2014 and that may weigh on the banking, insurance and consumer sectors. \n \n\n \n \u2018Strong headwinds\u2019 \n \n\n \n The Chinese central bank\u2019s move on Friday signals that the country acknowledges the risks to China\u2019s growth, analysts said. \n \n\n \n \u201cIt is a signal, it\u2019s a higher profile message I think, that the authorities are paying attention and alert to the possibility of downside risks,\u201d Andrew Tilton, chief Asia Pacific economist at Goldman Sachs, told CNBC\u2019s \u201cStreet Signs Asia\u201d on Monday. \n \n\n \n Separately, Eurasia Group analysts said: \u201cThe move, which is expected to inject 1 trillion yuan into the economy, is an acknowledgement of strong headwinds to corporate profitability, financial stability, and growth.\u201d \n \n\n \n The move \u201cdoes not detract from PBOC\u2019s \u2018prudent\u2019 monetary stance that\u2019s done with emphatic easing,\u201d said Vishnu Varathan, head of economics and strategy as at Mizuho Bank in a note on Monday. \n \n\n \n He added that it focuses on calibrating credit \u2014 to restrain credit to frothy or speculative sectors, while boosting it for small- and medium-sized enterprises. \n \n\n \n Varathan said that the cornerstone of Beijing\u2019s policy calculus is still to mitigate a build-up of financial stability risks. \n "

"China is injecting $150 billion into its economy"

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