Chinese stimulus helped propel the FTSE 100 higher on Tuesday as the world’s second-largest economy stepped up its efforts to support the economy.
China has taken a different approach to the slowing economy over the past year by holding back from major stimulus and choosing to let events play out – much to the displeasure of investors who had become accustomed to China acting at the first sign of weakness.
However, China’s stuttering growth has proved too much for Beijing, which again moved to stimulate the economy overnight, sending Asian stocks soaring.
“China has been searching for solutions to its economic growth challenge for some time, and stimulus measures haven’t really worked. It’s gone from being a trailblazer with supersonic economic expansion to a country whose batteries were close to running out of energy. It’s now gone all-in with its bet on getting the economy back into top gear and that’s driven the mother of all rallies on the Chinese stock market,” said Russ Mould, investment director at AJ Bell.
China chose to focus on the much-loved housing market for the latest major stimulus to help the struggling industry after years of slow growth and debt troubles.
“The People’s Bank of China has delved into its bag of tricks to try to get growth back to the 5% target, including cuts to interest rates, mortgage rates, and downpayments for house buyers,” said Matt Britzman, senior equity analyst, Hargreaves Lansdown.
The focus on housing plays straight into the Chinese wealth effect and the historical investment case for the country as a consumer of natural resources.
“The Shanghai SSE index jumped 4.15% while the Hang Seng soared by 4%, indicating that investors are pleased with plans to lower borrowing costs and allow banks to increase their lending. That had a direct read-across to the FTSE 100 and its army of commodity producers who should benefit from greater economic activity in China and for London-listed companies which do business with consumers in the country including Burberry and Prudential,” Russ Mould said.
The miners are almost always the biggest beneficiaries of Chinese stimulus, and on Tuesday, Antofagasta, Rio Tinto, and Anglo American were all among the top gainers.
Smiths Group was the top faller, down 7%, after releasing lacklustre full year results.