Maybe Liu Junluo Is Right: PBOC Cuts Again and Speculative Fever Catches; 5 Winners

The speculative fever is about to lift off in China as it joins the rest of the world's central bankers in propping up a paper economy. The headline in the iFeng real estate section: 央行明起降息 房价再跌的可能性接近于零 translates as "Odds of home prices falling almost zero." Yesterday, I posted Liu's latest comments on Weibo, warning rate cuts will ignite inflation and the Federal Reserve will not hike interest rates. The public's to the PBOC's move, at least initially, shows the first part of the warning may be correct. Centaline analyst Zhang Dawei's call for a 15% rise in prices this is also getting headline treatment again: 独家：央行11日起降息 房价涨幅或将超15%. We'll have to see if the market follows through, but the media attitude message is clear: dump your money into stocks and real estate.

Which stocks benefit from rate hikes? 5 winners are outlined in 时隔2个月央行再度降息 五大板块最为受益. They are copper (non-ferrous metals), banks, real estate, brokerages and capital intensive industries such as defense that were experience cash flow difficulties earlier this year.

Real Estate: interest rates for real estate stocks, belongs to positive. From the supply side is concerned, after the rate cut will help reduce the burden of interest rates for real estate developers; from the demand side in terms of interest rate cuts will help reduce the burden on people to buy real estate in favor of the need to mobilize the people to buy. The leading real estate stocks: investment real estate, Poly Real Estate, Vanke A, Golden Group.

Bank: for banks, the interest rates pros and cons, narrow the gap between bank deposit and lending rates for bank profits increased pressure; while increasing the bank Xichu difficult. However, the increase in lending, as well as economic recovery and development, and in turn drive the rise in banking business volume, in favor of the bank increased profits. Overall, the bank stocks, there are still long-term positive effect, short-term is to see whether the funds sought. Bank shares A-share market listed Industrial and Commercial Bank, China Construction Bank, Bank of Communications, Agricultural Bank of China, Ping An Bank, CITIC Bank, China Everbright Bank, Ningbo Bank, Huaxia Bank, Shanghai Pudong Development Bank, Industrial Bank, China Merchants Bank, Bank of Beijing, Nanjing Bank, Minsheng Bank a total of 16.

Broker: interest rates will exacerbate market volatility, while the volume expected to increase significantly, as a dependency brokerage business brokerage firms is a major positive, brokerage stocks CITIC Securities, Haitong Securities, Guoxin Securities, etc. will benefit.

Non-ferrous metals: interest rates are often meant to be represented by non-ferrous metal commodity prices will rise, non-ferrous metal stocks are expected to benefit from the central bank to cut interest rates. And after September the European Central Bank to cut interest rates, A shares ushered in case of non-ferrous metal stocks also rose briefly confirms this logic. Related stocks: Yunnan Copper, Jiangxi Copper Xiamen Tungsten like.

Financing cash flow accounted for the larger industries: interest rates mean that companies obtain enhanced financial capacity and access to lower cost of capital and, therefore, for those capital chain tension, the financing of large industry in terms of cash flow, interest rates tend to mean good. Data show that the first half of this year, cash flow from financing the tallest building in the real estate and industrial chain, defense, electronics and other industries, cash flow pressure.

Bloomberg translated the PBOC report. A very important piece that should not be overlooked is the increase in the deposit rate ceiling. The old deposit rate and ceiling were 2.5% and 1.3 times, or 3.25%. The new ceiling is 1.5 times 2.25%, or 3.375%.

PBOC Cites Downward Pressure on Economy in Q&A After Rate Cuts

2. Along with the rate cut, the floating range of deposit rates is widened to 150 percent of the benchmark. What’s the background and significance of this change?

A: At present, China has fully liberalized all interest rates apart from deposit rates, and the ceiling of deposit rates has been raised continuously, along with improvement of independent pricing capabilities of financial institutions. A deposit rate pricing market pattern of layered, orderly and differentiated competition has basically come into existence, and a market-based interest rate formation and transmission mechanism has been developed. At the same time, the successful launch of the deposit-insurance system, along with the establishment and improvement of a market interest rate pricing self-regulation mechanism, has laid a good foundation for accelerating the deposit interest rate liberalization. At present, the overall liquidity in the banking system is sufficient with money market interest rates tending to move downwards, and this in fact has created a favorable external environment and time window for the full abolishment of deposit interest rate ceiling. To promote interest-rate liberalization in a steadily and orderly manner, the People’s Bank of China has decided to raise the deposit interest rate ceiling to 1.5 times the benchmark, in tandem with the interest-rate cut. As not many financial institutions are offering ceiling deposit rates, basically, financial institutions won’t raise deposit rates to the new ceiling.

The raised deposit-rate ceiling is another important step in China’s market-oriented deposit interest rate reform. It will broaden the independent pricing scope of financial institutions to further improve their abilities of independent pricing and to push them to accelerate business model transformation and financial services improvement, which eventually will lay a more solid foundation for full abolishment of the deposit-rate ceiling; it will also help money prices to better reflect market supply and demand, to promote the formation of a savings structure that is balanced and in accordance with the wishes of depositors as a way to further optimize allocation of resources and to promote healthy economic and financial development.