UBS Projects Short-Term Rally after Reduced Reserve Requirements by PBOC

Source: CNBC

Investment Bank UBS expects China’s move to cut bank reserves to boost liquidity-sensitive sectors and firms with strong earnings expectations.

CSI 300 is up +1.25%, USDCNY is down -0.07%.

• The projections by UBS come after the People’s Bank of China cut the reserve requirements ratio by 50 basis points on Friday.
• About 1 trillion yuan or $154 billion is expected to be released in the economy following the bank’s move, boosting firms in aerospace and defense, IT, electronics, and media.
• UBS warns that any market rally will be short-lived due to concerns about slowdowns in China’s growth.
• The investment bank says China’s move is an acknowledgment of the risks that the country faces in financial stability, corporate profitability, and growth.
• Vishnu Varathan, a strategist at Mizuho Bank, says China’s move aims at boosting small and medium enterprises while restraining credit flow to speculative sectors.