23 October 2016
The government has rolled out incentive policies for the real estate sector. Photo: CNSA
The government has rolled out incentive policies for the real estate sector. Photo: CNSA

New policies to boost property and financial stocks

The mainland stock market continued to rise this week.

The Shanghai Composite Index closed up 1.77 percent on Monday, hitting 3,600 points again. The combined transaction volume rebounded to nearly 1 trillion yuan (US$154.3 billion).

The central government, after a meeting on economic affairs, said the monetary policy will be more flexible in the coming year, the supply side will be a key area of reforms, and restrictions on home ownership are likely to be revoked.

The financial sector outperformed. Insurers rose over 3 percent while banks surged more than 2 percent.

As the festive holiday approaches, speculators snap up winemaking stocks. Anhui Kouzi Distillery Co. Ltd. (603589.CN) reached its 10 percent daily limit while Jiangsu King’s Luck Brewery Joint-Stock Co. Ltd. (603369.CN) soared 8 percent.

After the Federal Reserve removed the uncertainty over interest rates, the renminbi’s exchange rate also stabilized, and the A-share market regained some vibrancy. 

The market is now more optimistic, responding strongly to good news.

In its meeting, the central government said it plans to start implementing the two-child policy on Jan 1. Baby foods and products will benefit directly from the policy. But in the mid term, demand for homes will also grow, and in the long term, it’s also positive for the manufacturing sector.

Inner Mongolia Yili Industrial Group (600887.CN) rose 10 percent while Bright Dairy & Food (600597.CN) surged 4 percent.

The meeting highlighted five tasks for the coming year: reduce industrial output, destock, deleverage, lower companies’ borrowing cost and refine weak chains.

According to the statement issued after the meeting, “obsolete restrictive measures in the property market should be revoked”.

Although it had no detailed explanation, nor did it say whether the 70-year home ownership limit will be removed, the statement became a hot topic online.

If the rule is removed, I believe home price increases will be further supported. The government has launched several incentive policies for the real estate sector. Thus, property stocks were having a good performance recently.

The meeting also decided to gradually expand fiscal deficit to make proactive fiscal policies more powerful, and adopt more flexible monetary policies to support structural reform.

The supply side reforms are aimed at reduce companies’ borrowing costs.

Property and financial sectors are likely to benefit from the new policies.

This article appeared in the Hong Kong Economic Journal on Dec. 22.

Translation by Myssie You

[Chinese version中文版]

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a columnist at the Hong Kong Economic Journal

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