China’s stimulus measures may have “less” impact on global assets, UBS says

Investing.com — A slew of recent stimulus measures announced by China will most likely provide a boost to domestic equities and have “much less” of an impact on global assets, according to analysts at UBS.

Last week, Beijing unveiled a package of new policies aimed at providing support to China’s sputtering economy and teetering housing sector, including a cut to interest rates and a reduction in existing mortgage costs.

The People’s Bank of China also announced a swap program with an initial size of 500 billion yuan designed to give funds, insurers and brokers easier access to funding needed to purchase stocks. The PBOC also said it would provide up to 300 billion yuan in cheap loans to commercial banks in a bid to help them fund share purchases and buybacks by listed companies.

Stocks in China posted their best weekly performance in almost 16 years following the announcement, and the upturn continued into Monday.

In a note to clients, the analysts said local equities in China should continue to be “the most direct beneficiary of the stimulus unveiled thus far.”

Analysts have argued that China may need to roll out more measures to prop up the economy. Data on Monday showed that China’s factory and consumer activity remained sluggish in September.

The UBS analysts said that the hopes for more stimulus — particularly fiscal support for consumers — and the relatively short duration of the jump in Chinese stocks means that they “aren’t fading” the rally yet. “Fading” refers to a trade against a prevailing market trend.

They added that global assets will likely be less buoyant following China’s stimulus moves, although some equity markets could still see a boost.

“Other Asian equity markets, [for example] Korea, can also benefit from easing headwinds for Chinese consumers amid undemanding valuation. Other inexpensive equity markets with strong/improving growth outlooks – S[outh] Africa, the Philippines, Malaysia and Poland – may not be directly exposed but can benefit from any potential recovery in flows towards [emerging markets],” the UBS analysts said.