Hi everyone. Now we thought it was worthwhile doing a quick video because we have had significant market-moving events in the past few weeks. Strangely, they all come from other parts of the world, but they mostly affect the European equity market.

Yet the US Federal Reserve bank initiated a significant interest rate cutting cycle, with guidance for more than the 50bps cut, and we had the Bank of Japan easing off its aggressive rate hike cycle guidance. These two things are actually the most important for China to orient its monetary policy on. Taking the pressure off like that gave the Chinese central bank much needed breathing room to initiate monetary easing, without worries about capital outflows or undue currency depreciation.

Consequently, without delay this week, China is following a number of monetary and fiscal easing measures. Now many market participants are saying this won’t be enough for the Chinese economy, but we disagree. Because we think it is quite rare to see a simultaneous cut of all the policy interest rates, and the required reserve rate (which is essentially how much lending banks can do). It is rare to see such a large magnitude of cuts. Thirdly, it is rare to see such unusual guidance on further policy measures to come.

Moreover, it is now followed by fiscal policy measures. This coordination between monetary and fiscal is also something we haven’t seen in recent years. We had the financial cash handout to poor people. We had a number of property market loosening restriction measures. There has been easing in local government bond issuance measures, purchase commitment for the stock market, recapitalisation investment into banks, etc. Overnight, Chinese state media reported of further measures that are expected over the coming weeks.

Now we think that is great news for European markets. And the reason is that European markets are essentially driven by more export-oriented, more by what is going on in the rest of the world. It is just a much higher exposure of export versus domestic demand. And typically, European equity markets tend to do best (ie. see a supportive market environment) when we are in a more co-ordinated global macroeconomic cycle upswing, that we think we might be on the cusp of right now. 

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