China stocks jump on surprise RRR cut, unfazed by new U.S. sanctions

SHANGHAI, July 12 (Reuters) - China’s bluechip share index jumped 1.6% on Monday as Beijing’s surprise policy easing boosted risk appetite among Chinese investors, who took Washington’s new sanctions in stride.

The Hong Kong market also rose, amid a relief rally in Asian shares following record highs on Wall Street.

The bluechip CSI300 index rose 1.6%, to 5,149.35 points by the lunch break, while the Shanghai Composite Index gained 0.9%, to 3,556.93. Hong Kong’s benchmark Hang Seng index added 0.7%.

Late on Friday, the People’s Bank of China (PBOC) said it will cut the amount of cash that banks must hold as reserves, releasing around 1 trillion yuan ($154.19 billion) in long-term liquidity to underpin a post-COVID economic recovery that is starting to lose momentum.

The cut in the reserve requirement ratio (RRR) was announced on the same day that PBOC released data showing China’s broad credit growth in June surged past expectations. But activity data due on Thursday is forecast to show a further softening.

“We think the larger than expected universal RRR cut is likely to reinforce market expectations that PBOC is determined to keep liquidity stable, which will support risk sentiment in the near term,” Tommy Xie, economist at OCBC Bank, wrote on Monday.

Capital Economics said: “Our assessment is that the PBOC is trying to nudge banks to lower lending rates without shifting its broader policy settings, such as its quantitative controls on credit. The RRR cut is the first clear sign that, with the withdrawal of last year’s stimulus essentially complete, the focus of policymakers is shifting towards managing structural strains, including the balance sheet weakness of highly-indebted firms.”

Meanwhile, investors ignored fresh sanctions measures by Washington against Chinese companies.

The Biden administration on Friday added 14 Chinese companies and other entities to its economic blacklist over alleged human rights abuses and high-tech surveillance in Xinjiang.

“The U.S. government has long been blacklisting Chinese companies, so such news is no longer a surprise to the market,” said Chen Jiahe, chief investment officer of Beijing-based family office Novem Arcae Technologies.

China’s start-up board ChiNext jumped over 3%, as smaller firms are seen as the biggest beneficiaries from the RRR cut.

New energy and environment protection stocks also rose sharply, as investors bet the sectors will receive staunch support from the government.

But banking and property stocks dipped slightly.

Citi on Monday flagged the potential pressure on banks in loan pricing, credit demand and asset quality as the unexpected RRR cut “may signal the economic recovery could be weaker than expected.”