Equities soar on mainland exchanges

Share prices rallied on Chinese bourses on Thursday as investor sentiment got a boost from the central bank's decision to inject fresh capital into the financial market to shore up growth by reducing the amount of cash financial institutions must set aside as reserves.

The benchmark Shanghai Composite Index rose by 1.15 percent to close at 3085.2 points, the highest level since late April. The Shenzhen Component Index gained 1.99 percent to close at 10,638.82 points.

The market rally was led by internet and technology firms, financial companies, machinery and semiconductor manufacturers. The rise reflected investors' expectation of the monetary loosening by the central bank to help ensure reasonably ample liquidity in the market and reduce financing costs for companies to stabilize the country's economic growth, analysts said.

The People's Bank of China said on Wednesday that it will lower banks' required reserve ratio by 0.5 percentage point, which will be effective from Monday. The RRR cut is expected to release about 800 billion yuan ($115 billion) into the financial sector.

Zhang Yulong, chief strategist at China Securities, said that the latest RRR cut by the central bank will help ensure the stability of China's financial sector and maintain ample liquidity in the market ahead of the Lunar New Year holiday.

"It is also beneficial to the stock market and the A shares are likely to continue to rise with stocks in sectors like property, construction and finance being the preferred picks of investors," Zhang said in a research note.

Market confidence was also boosted by the stabilizing trend of the Chinese economy. The official purchasing managers index of the manufacturing sector, a gauge of factory activity growth in China, stood at 50.2 last month. It is the second consecutive month that the index has remained in the expansion territory.

Zhong Zhengsheng, director of macroeconomic analysis at CEBM Group, said that the Chinese economy continued to stabilize in December as business owners' confidence has been improving and there is a stronger willingness among them to expand production and increase stocks.

Economists expect more monetary loosening to come, but China's policy easing will be modest as policymakers intend to avoid using massive easing to stimulate the economy. They said that the monetary easing could help boost China's infrastructure investment and credit growth this year.

"More monetary easing should help boost credit growth from 10.8 percent in 2019 to 11.4 percent this year, although this rebound would be much more modest than previous episodes of policy easing," Wang Tao, chief China economist at Swiss bank UBS, said in a research note.

Wang expected another RRR cut by 0.5 percentage point over the rest of this year and a 0.1 to 0.15 percentage point cut of the medium-term lending facility rate after inflation peaks in the first quarter.

"Overall, we continue to expect sequential growth momentum to rebound in the first and second quarters and maintain our 2020 GDP growth forecast at 6 percent," Wang said.