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China Stocks May Rebound on Cut in Bank Reserves

Cheng Lei|Reporter, CNBC Asia Pacific
Sunday, 13 May 2012 | 10:33 AM ET

China stocks may open higher on Monday, after the People's Bank of China announced Saturday a 50-basis point cut in the banks' reserve requirement ratio (RRR).

An investor watches the electronic board at a stock exchange hall in Huaibei, China.
ChinaFotoPress | Getty Images
An investor watches the electronic board at a stock exchange hall in Huaibei, China.

This is the third cut in six months, and the market gained after earlier RRR cuts in November and February.

The Shanghai Composite fell 0.63 percent on Friday to close at 2394.98, the index lost 2.3 percent last week.

Market Factors

The RRR cut, which will be effective May 18, is expected to release about 400 billion yuan of liquidity into the system. The move follows April data showing a deeper-than-expected slowdown in all three drivers of the economy: consumer spending, investment, exports. Economists expect more RRR cuts and other support measures for the economy in the coming months.

Prime Minister Wen Jiabao said over the weekend that China's overall economy is doing well, the country is confident, willing and able to achieve this year's economic targets.

Seven initial public offerings will take subscriptions this week compared to one last week.

Minister of Finance Xie Xuren is quoted by Chinese media as saying the property tax pilot will be widened and the authorities are considering collecting taxes on both existing and new housing. Current pilot is only for new housing.

Stocks to watch: Property, Banking

Property developer Soho's Chairman Pan Shiyi says on his microblog: "the RRR cut is a major piece of good news for the property sector."

Property analysts expect the RRR cut will allow banks to give larger discounts for first-home mortgages.

—By Cheng Lei, CNBC Asia Pacific