PBOC Cuts RRR After Stronger Than Expected Economic Data Release


Visit: KraneShares


Chief Investment Officer

Key News

Asian equity markets were largely lower led by Japan, India, Taiwan, and South Korea while Hong Kong and Australia remained on holiday.  The PBOC cut the bank reserve requirement ratio (RRR) by 25bps Friday while not cutting the medium-term lending facility  (MLF) or the repurchase rate.  The market expected a 50bps RRR cut though the PBOC’s statement made it clear they will cut incrementally versus pulling the band-aid.  

Q1 GDP grew +4.8% versus expectations of 4.2% while March industrial production +5% versus expectations of 4% and retail sales -3.5% versus expectations of -3%.  Within retail sales, online retail sales grew in March by +2.9% year over year and +8.8% in Q1.   We’ll see the effect of Shanghai’s lockdown though Wednesday restrictions will be loosened for many industries including automakers.  Vice Premier Liu He led another meeting on allowing port and logistics activity to take place despite the Shanghai restrictions. 

China Merchant Bank’s Shenzhen Stock Exchange listing fell -7.35% after President Tian Huiyu unexpectedly stepped down.  The private/non-SOE bank has historically been an investor favorite. 

Worth noting that technology/growth stocks outperformed as dividend/value sectors underperformed.  The clean technology ecosystem outperformed overnight led by solar, wind, and EV-related stocks. 

Shanghai, Shenzhen, and STAR Board diverged overnight -0.49%, +0.49%, and +3.21% though volumes were off -14.69%, which is just 72% of the 1-year average.  There were 2,709 advancing stocks versus 1,634 declining stocks.  Technology was the best performing sector +3.39% while real estate -3.64%, energy -3.07%, financials -2.71% and communication -1.43%.  Northbound Stock Connect was closed. Treasury bonds sold off, CNY appreciated slightly versus the US $, and copper +.51%.   

The Financial Times produced a fine piece of journalism in its interview with Scottish asset manager Baillie Gifford’s James Anderson who will retire later this month. While not a household name here in the US, Anderson is a legend due to his strong investment returns driven by early investments in US and Chinese tech companies. His focus is on founder-run companies and “…trying to find the extreme winners is the best way to invest.” A worthwhile read if your schedule allows!

Didi announced it will hold a shareholder meeting on May 23rd to discuss delisting its NYSE listing. The company said it would not seek another listing venue.  Because we do not hold Didi shares, I’ve not followed its saga closely.  I’ll do some work overnight and report back.

MSCI China all shares index
1 day percentage change asia indices
Shanghai and shenzhen most heavily traded by value

Last Night’s Exchange Rates, Prices, & Yields

  • CNY/USD 6.37 versus 6.37 yesterday
  • CNY/EUR 6.88 versus 6.95 yesterday
  • Yield on 10-Year Government Bond 2.81% versus 2.76% yesterday
  • Yield on 10-Year China Development Bank Bond 3.04% versus 3.00% yesterday
  • Copper Price +0.51% overnight

Originally Posted on April 18, 2022 – PBOC Cuts RRR After Stronger Than Expected Economic Data Release

Author Positions as of 4/18/22 are KBA, KALL, KCNY, KFYP, KCNY, KEMQ, BZUN, HSBC, KWEB, KHYB, LI US

Charts Source: KraneShares

Disclosure: KraneShares

Content on China Last Night is for informational purposes only and should not be construed as investment advice. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results; material is as of the dates noted and is subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.

This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities. Investing involves risk, including possible loss of principal.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

Forward-looking statements (including Krane’s opinions, expectations, beliefs, plans, objectives, assumptions, or projections regarding future events or future results) contained in this presentation are based on a variety of estimates and assumptions by Krane. These statements generally are identified by words such as “believes,” “expects,” “predicts,” “intends,” “projects,” “plans,” “estimates,” “aims,” “foresees,” “anticipates,” “targets,” “should,” “likely,” and similar expressions. These also include statements about the future, including what “will” happen, which reflect Krane’s current beliefs. These estimates and assumptions are inherently uncertain and are subject to numerous business, industry, market, regulatory, geo-political, competitive, and financial risks that are outside of Krane’s control. The inclusion of forward-looking statements herein should not be regarded as an indication that Krane considers forward-looking statements to be a reliable prediction of future events and forward-looking statements should not be relied upon as such. Neither Krane nor any of its representatives has made or makes any representation to any person regarding forward-looking statements and neither of them intends to update or otherwise revise such forward-looking statements to reflect circumstances existing after the date when made or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such forward-looking statements are later shown to be in error. Any investment strategies discussed herein are as of the date of the writing of this presentation and may be changed, modified, or exited at any time without notice.

Disclosure: Interactive Brokers

Information posted on IBKR Traders’ Insight that is provided by third-parties and not by Interactive Brokers does NOT constitute a recommendation by Interactive Brokers that you should contract for the services of that third party. Third-party participants who contribute to IBKR Traders’ Insight are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from KraneShares and is being posted with permission from KraneShares. The views expressed in this material are solely those of the author and/or KraneShares and IBKR is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

In accordance with EU regulation: The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.

Any trading symbols displayed are for illustrative purposes only and are not intended to portray recommendations.

Disclosure: Forex

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. When trading across foreign exchange markets, this may necessitate borrowing funds to settle foreign exchange trades. The interest rate on borrowed funds must be considered when computing the cost of trades across multiple markets.

Disclosure: Futures Trading

Futures are not suitable for all investors. The amount you may lose may be greater than your initial investment. Before trading futures, please read the CFTC Risk Disclosure. A copy and additional information are available at ibkr.com.