PBOC Stimulus Adds Momentum to U.S.-Traded Chinese Stock Rally

  • Central bank cuts benchmark lending rate to record-low 4.35%
  • Futures contracts on mainland and Hong Kong indexes advance

The biggest U.S.-listed exchange-traded fund tracking Chinese stocks rallied as policy makers cut benchmark borrowing costs and banks’ reserve requirements in the latest effort to boost growth in the world’s second-largest economy.

The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF gained 2.7 percent to $36.90 at the close on Friday in New York. A Bloomberg gauge of U.S.-traded Chinese equities rose 2.8 percent, led by consumer discretionary stocks. Futures on the FTSE China A50 Index gained 2.3 percent, while Hang Seng China Enterprises Index contracts climbed 1.5 percent. The announcement from the People’s Bank of China came after the close of regular trading in Asia.

Chinese stocks have rallied since this year’s low in August as speculation mounted that the government would take more steps to curtail a slowdown while gross domestic product is on pace to expand at the weakest pace in 25 years in 2015. The country’s sixth interest-rate cut since November comes before a meeting next week in which high-level government officials will set the Communist nation’s economic and social plans for the next five years.

Alibaba Rallies

“China’s action is very targeted and reactive rather than proactive, so it would appear that they’re taking a very gradual approach to stimulating the economy,” Michael Wang, a strategist at hedge fund Amiya Capital in London, said by e-mail Friday. “I view the cuts as more to help liquidity that to really boost growth.”

Friday’s gain in the Bloomberg gauge of Chinese ADRs reversed a loss for the week. Online retailers JD.com Inc. and Alibaba Group Holding Ltd. contributed the most to the advance, each gaining at least 3.4 percent.

The one-year lending rate will be cut to 4.35 percent from 4.6 percent effective Saturday the PBOC said, while the one-year deposit rate will fall to 1.5 percent from 1.75 percent. Reserve requirements for all banks were lowered by 50 basis points, with an extra 50 basis point reduction for some institutions.

Authorities are seeking to cushion a slowdown as mature industries such as manufacturing and construction falter and new drivers including consumption struggle to compensate. The need for new economic engines was underscored by data Monday that showed the economy expanded 6.9 percent in the three months through September from a year earlier.

Chinese growth “is going down, getting these bounces because of the stimulus and liquidity injections, but the trend is going down, and each bounce is getting smaller since they started this trend in 2011,” Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, said on Bloomberg TV on Friday.

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