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On the 24th of September,

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on Tuesday

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the Chinese

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financial regulators announced

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a series of monetary measures

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to ease financial conditions

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further in the country.

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There are three categories of policies.

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First, on the monetary side,

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the central bank cuts reverse

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repo rates by 20 basis points, 

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cuts reserve requirement ratio by 50

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basis points.

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And plans to raise

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core tier 1 capital of six large commercial banks

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Or simply put, replenished capital

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for these large banks.

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On the property front,

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it lowered the downpayment ratio

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for second homes

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and cut the existing mortgage

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rate by 50 basis points.

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And finally,

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the People's Bank of China

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also announced policies

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to boost stock

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market sentiment,

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including a swap facility of ¥500 million

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by the non-bank financial institutions

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to buy Chinese stocks,

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another ¥300 billion

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for corporates to buy back shares

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and also potentially

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a stock stabilisation fund.

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This set of monetary

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measures is clearly

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well thought out and very,

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very well planned.

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The central bank

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knows what the market wants

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and delivered the market wants.

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Can the monetary measures

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announced on Tuesday

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boost market sentiment

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and valuation? Yes.

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But can they help the economy

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and therefore corporate earnings?

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Probably very little.

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We have long argued that

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the monetary condition is not a binding

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constraint on the economy

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and is a fiscal policy that matters.

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So before we see any forceful

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and effective policies

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being rolled out,

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we see this

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as another tactical bounce

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in the market,

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but likely larger than the previous ones

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that we saw in the past.

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And it will be valuation driven

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without much positive

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earnings revisions to expect.