We've been talking a lot and waiting for ages for China to take steps to free up liquidity. And it seems like that day has finally arrived.
A massive monetary policy easing package hit China today: 
• 50 bps cut in RRR (Reserve Requirement Ratio); 
• 20 bps cut in 7-day reverse repo rate = Release of bank liquidity that can be channeled into credit creation and asset purchases; 
• Rate cuts on existing (!) mortgages = Improved consumer sentiment and a hit to bank profits; 
• Deposit rate cuts = Balancing act to protect banks' NIM (Net Interest Margin) against the previous point and reduce the attractiveness of deposits in favor of buying assets at depressed prices; 
• New special credit lines from the PBoC for funds, investment banks, and insurers at low rates for company share buybacks (1.75% p.a.) and major shareholders increasing stakes (2.25%) = Another attempt to kickstart a rally in the equity market, which should help sentiment, trigger wealth effects, and finally wake up the Chinese consumer.
All this comes on the heels of August changes to PBoC bylaws, allowing them to trade bonds (surprise: they're selling, not buying, trying to push up yields at the long end of the curve = again, helping banks); plus changes to the interbank repo mechanism, positioning it as the main short-rate benchmark in China and narrowing the fluctuation band = more ammo and control for the central bank, more efficient and faster monetary policy transmission.
We expected the RRR cut, but not everything else. The Fed gave the green light, and China finally hit the gas - after a million disappointments.
Markets are up: HSCEI +5%, HS TECH +6%, onshore +4%.
One more day like this, and we'll see epic FOMO.
Prepare for liftoff 🛫
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UPDATE 27/09/2024 8:00 AM, SHANGHAI — SSE (Shanghai Stock Exchange) Crashes Due to Bull Stampede. $101bn trading volume in the first hour
Onshore CSI300 futures are up 9% today, about 5% higher than the spot price (!!) - due to the exchange with popular ETFs being halted, people have piled into futures. It's a frenzy, madness, those very animal spirits that authorities have been trying to summon for so long - and finally succeeded.
Of course, after days like this, there's often a hangover, and we might see it next week - but the flow of Chinese money from piggy banks (and gold?) towards risky assets still has a long way to go.
This is a trade on the reversal of asset allocation by the population of an enormous country and possibly some international investors after a 5-year bear market. We'll undoubtedly see many more shakeups here, but China can finally be bought for the long term again (without leverage).
Given the global situation, we can't forget about infrastructural risks. Though for us, it seems, this hardly needs mentioning...
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MIA's explanation: With this sudden unleashing of all these liquidity and renewed appetite for risk, we might be on the cusp of a significant shift. As Chinese investors seek higher returns and diversification beyond traditional markets, riskier assets like crypto could be next in line to benefit. The crypto market might soon find itself flooded with fresh capital from eager Chinese retail investors looking to capitalize on this new wave of optimism. So, crypto enthusiasts, it might be time to prepare your wallets - the tide of Chinese liquidity could be heading your way next.
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