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China RRR cut to benefit realty companies

Chinas recent move to cut reserve ratio requirements for banks is seen as benefiting companies with high leverage and in particular real estate developers, according to JP Morgan Asset Management.

Last week, the People’s Bank of China cut the reserve requirements ratio (RRR) for banks by 50 basis points to 19.5% as it seeks to add more liquidity to the economy, help boost bank lending and combat a growth slowdown.

The immediate beneficiaries of the policy announcement are banks, notwithstanding concerns over credit quality deterioration, followed by non-bank financial companies. It could be a lifeline for firms that are struggling to raise capital or facing punishing funding costs,.

The move also supports countries that are dependent on Chinese demand for commodities, the firm said.

But, a slowing investment growth and high inventory in metals should remain a drag on China’s appetite for commodity imports for much of 2015, JP Morgan added.

More rate easing moves?

Given China’s latest economic indicators, JP Morgan said more cuts in the RRR or benchmark lending rate are expected in the coming months.

HSBC Global Asset Management holds similar views.

“We expect further monetary easing in the coming months, via targeted measures and possibly further RRR cuts or policy rate cuts, on the back of persistent domestic economic challenges [local government fiscal constraints, de-leveraging, over-capacity, and property market adjustment, etc.] and increasingly volatile external liquidity conditions/capital flows,” HSBC said.


Part of the Mark Allen Group.