On September 24, shares of metal companies rose significantly, up to 5%, following the announcement of several measures by China's central bank aimed at revitalising its struggling economy. This boost comes in the wake of ongoing challenges faced by the country, including a property sector debt crisis, high youth unemployment rates, and waning consumer demand.
Central bank initiatives to stimulate growth
The People's Bank of China (PBOC) has introduced several crucial initiatives designed to encourage economic growth. Key among these measures are the planned reduction of the reserve requirement ratio, the lowering of policy interest rates, and a drive to decrease the market benchmark interest rate. These actions are intended to stimulate economic activity and restore investor confidence.
During a recent press conference in Beijing, PBOC chief Pan Gongsheng confirmed that 0.5 percentage points would cut the reserve requirement ratio soon. This proactive step is anticipated to inject approximately a trillion yuan into the financial system, providing much-needed long-term liquidity.
Additionally, the PBOC plans to lower interest rates on existing mortgages and standardise down payment ratios. These moves are expected to stimulate demand in the property sector, which has historically represented over 25% of China’s GDP.
Challenges facing the property sector
Despite these positive developments, the property sector has faced substantial challenges since 2020. Authorities implemented restrictions on developer credit access in a bid to manage rising debt levels, which has led to significant struggles for major players such as China Evergrande and Country Garden. The resulting decline in property prices has further discouraged consumer investments, leading to a decrease in metal demand from China, the world's largest importer.
Positive impact on metal stocks
The announcement of these economic measures has instilled a sense of optimism regarding a potential recovery, particularly benefiting metal stocks that rely on a resurgence in demand. Shares of metal companies began to rally in anticipation of improved market conditions, with prominent firms like NALCO and NMDC rising nearly 5%. Other companies, including MOIL, SAIL, Tata Steel, Jindal Steel, Vedanta, Hindalco, JSW Steel, and Hind Zinc, also recorded gains between 1% and 3%, propelling the Nifty Metal index upwards by over 1.5%.
In a noteworthy transaction, 54.2 lakh shares of Tata Steel changed hands through three block deals on the exchanges, although the identities of the buyers and sellers were later revealed.
Key takeaways
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