The Peoples Bank of China (PBOC) is effectively pumping over $200bn into their economy as they cut the amount of cash that banks must hold in reserve thus enabling greater lending flexibility in the second half of 2021. So far the initial reaction has been to send most equity markets higher understandably led by the resources stocks. The announcement was unexpected as was demonstrated by the sharp pop higher by the likes of BHP and Fortescue Metals (FMG) and it feels like a clear message from China that they are going to continue pushing their economic expansion, history tells us not to fight the PBOC when they implement a strategy it rarely if ever performs a 180.
We believe the real key to this story is markets had been positioning themselves for a reduction in stimulus plus a rising bond yield environment hence fund managers are potentially wrong on this one. If COVID does indeed deliver another painful wave as history shows is often the case with pandemics then the PBOC may simply be the 1st cab off the rank e.g. Gladys is likely to deliver a major cash injection to NSW businesses in the next 48 hours in what’s now being touted as its own JobKeeper.
Our report today is looking at 3 other stocks that may deliver a buying opportunity from this change of heart around stimulus although hopefully Sydney’s has become a distant memory by Christmas. The obvious benefactors of the PBOC are the resources names which in many cases look poised to post fresh all-time highs although we should also consider if the PBOC was providing a news driven selling opportunity however at this stage MM is happy to hold and watch.
On balance MM now anticipates fresh all-time highs from the likes of FMG
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