The central bank's policy stimulus package has activated market vitality, lowering reserve requirements and interest rates to release trillions of liquidity, benefiting real estate, stocks, and foreign exchange markets.

On September 24, the central banks announced three major policies: first, to reduce the reserve requirement ratio and policy rates, driving down the market benchmark interest rates; second, to lower existing housing loan rates and unify the minimum down payment ratio for housing loans. Third, to establish new policy tools to support the development of the stock market.

The 'one-two punch' triggered a market frenzy. Today, the Shanghai Composite Index rose by 4.15%, marking the largest single-day increase in over four years; the Shenzhen Component Index rose by 4.36%, the Chinext Price Index rose by 5.54%, and the Hang Seng Index saw the largest single-day surge in a year and a half.

How will the central banks' policy package affect China's assets? Huachuang Securities believes that the frequency and magnitude of future monetary policies may have more room for imagination than in the past year. For the equity market, the policy shift may help improve market risk appetite, which will drive the speculative market in equities. However, the switch between stocks and bonds still requires observation of the trend of corporate profit improvement. Real estate policy adjustments are somewhat supportive, but market repair still requires some patience.

Minsheng Securities pointed out that the current fiscal consideration is increasingly focused on how to make good use of existing policies. The trend of fiscal policy shifting from "stabilizing investment" to "promoting consumption" is also emerging, including the use of ultra-long-term special national bonds for "new" industries, which is strong evidence. Of course, the monetary policy has shown a loose trend. After the effective and efficient use of fiscal policies, a continuation of fiscal easing may also be on the way.

Real Estate Market: There are five major bullish aspects to the new real estate policies.

Today, Pan Gongsheng, the Governor of the People's Bank of China, announced five policy measures to support the real estate sector. These include:

• Lowering the interest rates on existing real estate loans and unifying the minimum down payment ratios for real estate loans, guiding commercial banks to reduce the interest rates on existing real estate loans to levels near those of newly issued real estate loans, with an expected average reduction of around 0.5 percentage points.

• Unifying the minimum down payment ratios for first-time and second-home real estate loans, reducing the nationwide minimum down payment ratio for second-home mortgages from 25% to 15%.

• Increasing the support proportion from 60% to 100% for the 300 billion yuan in secondary housing loans provided by the People's Bank of China in May, using central bank funds for affordable housing refinancing.

• Extending the deadline for expiring operating property loans and the two policy documents outlined in the "16 financial measures" to the end of 2026.

• Based on the use of part of the local government's special bonds for land reserves, research on allowing policy banks and commercial banks to provide loans to support conditionally enterprise market-oriented acquisitions of real estate companies' land, activate existing land, and alleviate the financial pressure of real estate companies. When necessary, the People's Bank of China can provide policy support.

Li Yujia, Chief Researcher of the Housing Policy Research Center of the Guangdong Provincial Urban Planning Design Institute, said: This new policy has five key bullish factors. First, it benefits the purchase of the second home; secondly, it benefits first-home loans in key cities (first-tier cities, Xiamen, Hangzhou, etc.); third, it dispels concerns of homebuyers, implying that the interest rates on existing loans may be normalized to maintain balance with the interest rates on newly issued loans, which is most important; fourth, early repayment will significantly ease the burden, after a 50 basis point decrease in interest rates on existing home loans, a 1 million 30-year loan can save 300-400 yuan per month, providing financial support for ordinary salaried families, promoting consumption; fifth, it encourages residents to leverage, supporting real estate consumption on one hand, and stabilizing domestic demand through increased real estate activity to hedge against deflation especially.

Wang Qing, Chief Macro Analyst at Orient Securities, speculates that the next step may be targeted interest rate cuts for the real estate industry: the next step will focus on implementing urban real estate financing coordination mechanisms. After real estate enterprises' credit financing sources turned positive year-on-year in August, they will continue to see sustained improvement.

We also believe that the key next step is to further lower the interest rates for new residential loans, which is crucial to reversing market expectations. After the People's Bank of China announced a 20 basis point cut in policy rates, the interest rates for newly issued residential loans will follow suit. However, considering the current low price levels, the GDP deflator index is negative year-on-year, and the actual interest rates for residential loans taking into account price factors are still relatively high, with significant room for reduction. Further lowering mortgage rates, implementing targeted interest rate cuts for the real estate industry, will be the main focus of future policies to support the property market.

Stocks: Improving market risk appetite, may welcome a new batch of incremental funds.

Pan, the President, emphasized: 'We will create convenience for securities, funds, and insurance companies to support each other, allowing eligible securities, funds, and insurance companies to obtain liquidity from the central bank through asset pledging, significantly enhancing their funding capacity and shareholding ability. Introducing special rediscounts to guide banks to provide loans to listed companies and major shareholders, supporting share buybacks and increasing shareholdings.'

Ta Chuan of Minsheng Securities believes that what may 'impress' the market the most is the country's more supportive attitude towards the capital markets. The People's Bank of China has introduced two tools to support the stock market: the first is creating convenience for securities, funds, and insurance companies to support each other, with a scale of 500 billion yuan, which may expand in the future depending on the situation; the second is establishing a special rediscount for stock repurchases and increases, guiding banks to provide loans to listed companies and major shareholders to support buybacks and shareholdings.

Chen Guo of China Securities Co., Ltd. believes that the actual impact of the combined policy measures mainly focuses on three aspects: improving market risk appetite, the A-share market is expected to usher in a new batch of incremental funds, and it is expected to boost consumer spending and alleviate pressure on the real estate chain.

1. Risk Preference: With clear policy signals, market risk preference is first improving. Reducing the reserve requirement ratio and policy interest rates to release liquidity, it is expected to join forces with future fiscal efforts to support the economy in the fourth quarter. Lowering the interest rates on existing housing loans in response to market concerns is equivalent to subsidizing residents with commercial bank money, and the shift in policy thinking can boost investor confidence. Introducing new policy tools to support the development of the stock market has sent a clear signal of policy support to the stock market, further enhancing market risk preference.

2. Liquidity: A-shares are expected to attract a new batch of incremental funds, with specific effects yet to be observed. The China Securities Regulatory Commission will issue opinions to promote the entry of medium and long-term funds into the market. Judging from the stance of the central bank this time, A-shares are expected to receive three major incremental funds with the support of the central bank: ① The central bank has for the first time created structural policy support for the capital markets, where securities, funds, and insurance companies can exchange facilities, with an initial operating size of 500 billion yuan and the potential to expand in the future. ② The establishment of stock buyback and increase lending, with an interest rate of 2.25% and an initial scale of 300 billion. If this work is done well, additional funds can be added in the future. ③ The State Administration of Foreign Exchange is conducting research. Based on the initial scale of the first two major tools, it is expected to bring in incremental funds of no more than 800 billion, but the specific landing effects remain to be observed (the quota may not be fully utilized). In view of the current fund situation of A-shares, if it exceeds 500 billion, it will be a significant bullish signal, driving a substantial rebound in A-shares.

3. Fundamentals: Expected to boost consumer spending and ease pressure on the real estate chain. The stimulative effect of interest rate cuts is yet to be observed, but the average annual reduction in household interest expenses of around 150 billion yuan on existing housing loans can be substantially converted into consumption power, injecting a strong stimulus for the weak retail sector. Extending the deadlines of two real estate financial policy documents, and measures such as the central bank supporting the acquisition of existing land by real estate enterprises will also improve the basic fundamentals of the real estate chain and boost market confidence.

Bond Market: May face some downward pressure for correction.

Quoting a bank wealth management professional to the Securities Daily, despite the positive policy stimulus, although the fundamentals still favor the bond market performance, the cost-effectiveness of the bond market will decrease with the stabilization of the economy and the improvement of the real estate market.

Today, treasury futures closed across the board with declines. The 30-year main contract fell by 0.99%, the 10-year main contract fell by 0.24%, both posting the largest decline in over a month. The 5-year main contract fell by 0.08%, and the 2-year main contract fell by 0.02%.

Deputy General Manager of China Aviation Fund, Deng Haiqing, believes that after the unexpected 50 basis point rate cut by the Federal Reserve this month, it has actually opened up space for domestic monetary policy and is conducive to improving liquidity. With recent appearances of policies boosting the domestic economy, the domestic bond market will face some downward pressure for correction.

Foreign Exchange Market: Maintaining the basic stability of the RMB exchange rate at a reasonable and balanced level.

The Governor of the central bank, Pan Gongsheng, stated at the meeting that the monetary policies of major economies have been adjusted recently, the depreciation pressure on the renminbi exchange rate has significantly eased, and it has shifted towards appreciation.

He stated, "The People's Bank of China's position on exchange rate policies is clear and transparent. First, we adhere to the decisive role of the market in determining exchange rates and maintain exchange rate flexibility. Second, we need to strengthen expectation guidance to prevent unilateral consistent expectations in the foreign exchange market from self-fulfilling, guard against risks of exchange rate overshooting, and maintain the renminbi exchange rate at a basic stable level of rational equilibrium."

After a series of policy bullish signals were released, the renminbi exchange rate on the 24th showed a stable and rising trend, with both onshore and offshore renminbi exchange rates approaching the 7.03 threshold at one point.

Among them, the onshore renminbi exchange rate reached a high of 7.0319 during the day, rising more than 200 points intraday; the offshore renminbi exchange rate reached a high of 7.0308, just a step away from reclaiming the 7.03 threshold, with an appreciation of over 350 points intraday.

Zhang Yu, Deputy Director of the Research Institute of Huachuang Securities and Chief Macro Analyst, stated that considering the current backdrop of relatively low exchange rate pressure, there may be greater room for imagination in the frequency and magnitude of future monetary policies compared to the past year.

Editor / jayden