(Bloomberg) — Asian stocks advanced after China’s central bank announced stimulus measures in a bid to reach this year’s economic growth target and stem a selloff in the equity market.
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Shares in Hong Kong gained the most, with key benchmarks rallying at least 3%, while onshore Chinese indexes rose more than 2% as authorities said they are studying setting up a stock stabilization fund. The MSCI Asia Pacific Index climbed 0.7%.
China is planning at least 800 billion yuan ($114 billion) of liquidity support for stocks and will allow brokerages and funds to tap the central bank’s funding to buy equities after the benchmark CSI 300 Index fell to more than a five-year low earlier this month. That came as part of a broad package of policy measures to revive the economy, including a cut to a key short-term interest rate and lower borrowing costs on as much as $5.3 trillion in mortgages.
While the initial market response following the stimulus measures was positive, analysts see a risk that the rally may soon fizzle as some of the fundamental woes plaguing China’s economy, including deflationary pressure, remain unsolved.
“These measures clearly show Beijing now understands and appreciates the urgency of boosting stock market and housing market sentiment,” said Siguo Chen, portfolio manager at RBC BlueBay Asset Management. “Short term it will help market find a bottom, but long term I think we need to see more fiscal support.”
The People’s Bank of China will set up a swap facility allowing securities firms, funds and insurance companies to tap liquidity from the central bank to buy stocks, the governor said at a Tuesday briefing. China’s 10-year government bond yield erased its drop after earlier falling to 2% for the first time on record.
“This kind of measure can raise more funds, increase market liquidity, and can also improve market confidence to a certain extent in the short term, but it cannot change the market trend,” said Zhou Nan, founder and investment director at Shenzhen Long Hui Fund Management Co. “There is a…
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