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This week’s featured insight is our DBS Aggregate Credit Spread (DACS) analysis, tracking corporate credit performance and offshore funding costs across industries for China, Hong Kong, Korea, India, and Indonesia.China announced in late Sep a wide-ranging set of stimulus measures to support growth, as well as the equities and housing markets. It includes a sharp easing of monetary policy, with a 20bps cut to the 7d repo rate, 30bps cut to the 1Y MLF rate and 50bps RRR cut. Existing mortgage rates will be reduced by around 50bps, while downpayment ratios on second home purchases would be reduced from 25% to 1%. The PBOC also set up a CNY500bn swap facility for non-bank financial institutions to get liquidity for stock purchases with their assets as collateral, and a CNY300bn relending facility with a 1.75% rate to guide banks to support listed companies' stock buybacks. China also plans to issue around CNY2trn of special sovereign bonds to boost consumption and help local governments tackle their debt problems. The Politburo had pledged to deploy necessary fiscal spending to meet this year's growth target of around 5%.
Hopes of a turnaround in growth had provided a boost to Chinese equities, and buoyed sentiment in Chinese USD credit markets too. Our China DACS index has eased by around 10bps from mid-September levels since the announcement, with the real estate and REITS sector subindex falling by near 100bps. Chinese developer stock prices have already rallied significantly, given market hopes that policy could support a turnaround in property sales. Hong Kong USD credit has seen a similar improvement, with our HK DACS index easing by around 15bps since mid-Sep, and the real estate and REITS sector subindex showing an even larger spread compression. We remain positive on Hong Kong credit.
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