China rolls out measures to support economic growth

25 April 2022

Kai Kong Chay, Senior Portfolio Manager, Greater China Equities

On 15 April, the People’s Bank of China (PBOC), China’s central bank, announced a reduction in its reserve requirement ratio (RRR). Last week, the government also published 23 measures to support individual and small businesses, and stepped up its efforts to keep supply and industrial chains stable. In this investment note, Kai Kong Chay, Senior Portfolio Manager, Greater China Equities, presents an updated view of the China and Hong Kong markets. He believes that the latest measures reiterate China’s stance on economic stability and sees opportunities in China and Hong Kong equities that could benefit from these supportive policy actions.

China’s central bank flexes its monetary-policy tools

China announced several measures to release long-term liquidity into the financial system to bolster the economy. These include:¹

On 15 April, the PBoC reduced the RRR for most banks by 25 basis points and by 50 basis points for smaller lenders, effective 25 April.
The one-year policy interest rate remains unchanged, disappointing most economists who predicted a cut.² (See Chart 1)
According to the PBoC, the RRR change will unleash about RMB530 billion (US$83 billion) of long-term liquidity into the economy. The PBoC last reduced the ratio in December 2021.

Chart 1: China’s reserve requirement ratio and lending interest rate (as of 19 April 2022)

Source: Bloomberg, 19 April 2022. *Note: The reserve requirement ratio (RRR) will be reduced to 11.25% is effective from 25 April 2022.

Measures to support economic growth

In addition, China’s corporates or small and medium enterprises (SMEs) may benefit after the central bank announced 23 additional measures to support the economy. Some key highlights include:³

Banks are being urged to expand lending to people with “flexible employment”, such as taxi drivers, online shop-owners, and truck drivers, and provide longer-term and cheaper loans to small businesses.
The PBOC vowed to extend or establish relending programs that provide funds for banks to lend to sectors that were hit by the pandemic. Such relending programs are expected to represent approximately RMB1 trillion (US$157 billion) in additional bank loans.
Local authorities are being called on to set appropriate minimum down payment requirements, and mortgage rates based on each city’s conditions and banks are encouraged to support the reasonable financing needs of property developers and construction companies.
Policy banks are being asked to step up their financing to major investment projects, while commercial banks are expected to be more proactive in lending to infrastructure projects and purchase local government bonds to support advanced construction.
A transfer of RMB600 billion of profit was made to the central government in mid-April, which will be mainly used for tax rebates and transfer payments to local governments. This profit transfer has increased the base money supply and equals a 25 basis-point cut in the reserve requirement ratio, the PBoC said.

Separately, the China Banking and Insurance Regulatory Commission vowed to increase financial resources for logistics, transportation, and courier industries and use the relending funds to lower financing costs. It will provide funding support to smaller businesses suffering from temporary difficulties due to COVID-19.

The implications of China’s newly announced measures

While some market participants expected a bold reduction in interest rates, we believe China has adequate policy tools other than a rate cut to support growth if needed.

Despite a near-term dampening of investor sentiment, we believe the recent measures prove that China is determined to support the local economy:

China continues to coordinate between epidemic control and economic development. On Monday, 18 April, Chinese Vice Premier Liu underlined efforts to stabilise supply and industrial chains. Shanghai’s city authorities have asked 666 local and foreign companies, mainly in the automobile, semiconductor, and energy industries, to resume production amid the city’s lockdown.
We expect more targeted fiscal stimulus to come in the third or fourth quarter of 2022, which will likely underpin further economic growth.
Despite the fact that more than 60 non-Tier 1 cities have already rolled out relaxation measures, additional housing-related policies may be unveiled. Many cities have introduced more favourable mortgage costs or down payment requirements, while more Tier 2 cities such as Quzhou, Dalian, Suzhou, and Nanjing have relaxed home purchase and/or resale restrictions.⁴
China is pushing ahead with its mRNA vaccine development, which should help fight the spread of Omicron or other COVID-19 variants down the road. For example, the country’s health authorities have recently approved the trials of two mRNA vaccines.⁵

Structural growth opportunities in China and Hong Kong equities

While we remain selective, we see opportunities in the sectors and key themes of China and Hong Kong equities that should benefit from China’s structural growth story. These opportunities include:

Exposure to both domestic Hong Kong equities with attractive dividends while also tapping into growth areas.
Potential beneficiaries in the consumption sector. For example, companies with the ability to pass on cost inflation.
The materials sector could potentially benefit from a boost in infrastructure investment.
In general, we continue to favour sectors that should benefit from China's 14th Five-Year Plan (FYP). Preferred themes that the FYP could support include consumption upgrades, research & development (R&D), innovation, renewable energy, and energy transition, as well as new infrastructure. (See China and Hong Kong equity markets tested by a “perfect storm”)

China stands ready for further policy measures

Overall, we believe China is ready to act and likely to step up policy easing should a sharper economic slowdown occur. In addition, China has the levers for fiscal support, such as further spending on investments and infrastructure, as well as tax refunds and cuts. While near-term market sentiment has been mixed, we view the latest measures as signs that China is on track to maintain its economic course.

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1 Bloomberg, 19 April 2022.

2 Reuters, 18 April 2022.

3 Bloomberg, 19 April 2022.

4 Reuters, 18 February 2022.

5 South China Morning Post, 4 April 2022.

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Certain sub-funds with significant exposure to Renminbi (“RMB”) bonds/equity/assets or emerging markets, may involve debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with the world's more established markets.
A bond sub-fund may hold a significant portion of assets in deposits if there are not sufficient RMB instruments for it to invest in. This may adversely affect its return and performance.
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RMB is not freely convertible and is subject to exchange controls and restrictions.
Certain sub-funds may have significant concentrated exposures to particular industry sectors and geography's, which subjects investors to concentration and equity market risk.
Certain sub-funds may invest in equities of small- and mid-capitalization companies, which can expose investors to liquidity and volatility risks, and is subject to greater risk than is customarily associated with investments in larger capitalization companies.
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This website is not intended for use by any individual in any jurisdiction where, due to their nationality, residence, foreign exchange control or other circumstances, the publication or access to this website is restricted or prohibited. It shall be the sole responsibility of the investor to acquaint themselves with, and to comply with, all applicable laws and regulations of any relevant jurisdiction.
Funds offered on this platform may invest in equity, fixed income securities, exchange-traded funds, collective investment schemes and/or other instruments, including derivatives, and each of which has its specific investment objective/ policy with its specific features and different risk profile.
Distribution of dividends, the frequency of distribution and the amount/rate of dividends are not guaranteed. Dividend of certain share/unit classes, at the fund or the investment manager’s discretion, may be paid out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share/unit of the respective share/unit classes after the distribution date.
Some funds may invest in bonds or debt securities which may be subject to credit, liquidity, counterparty and market risks.
Some funds may invest in non-investment grade bonds and unrated securities which may be subject to greater credit and liquidity risks, and may be more volatile than higher rated securities. Some funds may invest in investment grade debt securities, which may be subject to ratings downgrades by the rating agencies that may affect the net asset value of the fund.
Some funds may invest in derivative instruments which may involve additional risks. (For example, leverage may cause greater volatility.)
Some funds may make extensive use of derivatives including more complex derivative instruments or strategies to achieve the investment objective, this may give rise to additional exposure in that performance may rise or fall more than it would have done otherwise. In adverse situations, the fund’s use of derivative instruments may become ineffective and the fund may suffer significant losses. The use of derivatives may give rise to leverage, liquidity, counterparty and valuation risks.
Some funds may invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Some funds may invest in securities of small and/or medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Some funds may invest in a single country/region and/or a particular industry sector which may be concentrated and subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Some funds may invest directly in certain China A shares via the Stock Connect, which may involve risks related to investments via the Stock Connect and Mainland China investment.
Some funds may have significant exposure to Renminbi ("RMB") bonds/equity/assets or emerging markets, which will be subject to debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with more established markets.
Some funds with significant exposure to RMB bonds/equity/assets may hold a significant portion of assets in deposits if there are not sufficient RMB instruments to invest in. This may adversely affect the funds’ return and performance.
Some funds using Qualified Foreign Institutional Investor (“QFII”) quota to invest directly in debt instruments/shares in Mainland China may be subject to various requirements and restrictions under the laws of Mainland China related to QFII investment and custodial risks.
Some funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
As RMB is not freely convertible, currency conversion is subject to exchange controls and restrictions. There can be no assurance that RMB will not be subject to devaluation. Insufficient amount of RMB for currency conversion or devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated class(es) of certain funds. The “Dim Sum” bond market is still a relatively small market which is more susceptible to volatility and illiquidity. Due to RMB concentration risk, the value of the funds with substantial RMB exposure may be more volatile than that of a fund having a more diverse portfolio of investments.
Some funds’ performance will be closely tied to the economic, political, regulatory, geopolitical, market, currency or other conditions in the European Economic Area and may be subject to increased liquidity, price, and foreign exchange risk.
Some funds may invest in Russia and some investments in Russian securities may be unlisted securities not dealt on a regulated market. The Russian market presents specific risks in relation to the settlement and safekeeping of securities.
Investment involves risk. Investors may expose to capital loss and should not invest solely based on the information on this website alone and should read the offering documents for details including the associated risk factors, charges and features of the funds and their share/unit classes. Past performance information is not indicative of future performance.

Manulife Global Fund

Manulife Global Fund is an umbrella fund comprising a number of sub-funds investing in equity and/or fixed income securities, each of which has a different investment objective and risk profile and may involve equity market, geographical concentration, sovereign debt, liquidity, volatility, credit downgrade, interest rate, counterparty risks. Certain investors may also be subject to the risk relating to RMB hedged share class.
The relevant distributing class of the sub-funds does not guarantee distribution of dividends, the frequency of distribution and the amount/rate of dividends. Dividends may be paid out of income, realized capital gains and/or out of capital of certain sub-funds in respect of Inc share class(es). Dividends may be paid out of realized capital gains, capital and/or gross income while charging all or part of their fees and expenses to capital (i.e. payment of fees and expenses out of capital) in respect of MDIST (G), R MDIST (G) and F MDIST (G) share class(es). Dividends paid out of capital of these sub-funds amounts to a return or withdrawal of part of the amount of an investor’s original investment or from any capital gains attributable to that original investment and may result in an immediate decrease in the net asset value per share in respect of such class(es) of the sub-funds. Fixed yield share classes pay out a pre-determined annualized fixed percentage of their NAV, which can be adjusted by the Directors with at least one month’s prior notice, do not entirely reflect the actual or expected income or performance of the Fund. These distributions may exceed the actual income, leading to capital erosion, especially during negative returns or losses, and may reduce future capital growth. A positive distribution yield does not guarantee a positive return, and the absolute distributions vary with the NAV, resulting in fluctuating monthly payouts for investors.
Certain sub-funds invest in emerging economies or markets, where special risks, including liquidity, volatility, government policies, taxation, currency, currency repatriation, political and regulatory risks, may be substantially higher than the risks normally associated with more developed economies or markets.
Certain sub-funds invest in securities of small and medium sized companies in the relevant markets. This can involve greater risk than is customarily associated with investments in larger and more established companies.
Certain sub-funds concentrate their investments in a single country and/or a particular industry sector are subject to greater risks than diversified investments in several countries and/or regions and across sectors.
Certain sub-funds may invest directly in certain China A shares via Stock Connect, which may involve in risk related to Investments via Stock Connect and Mainland China investment.
Investment involves risk. The sub-funds may expose their investors to capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds and their share classes.
Each sub-fund intends to use financial derivative instruments (“FDIs”) for investment, efficient portfolio management and/or hedging purposes. The use of FDIs exposes the Fund to additional risks, including counterparty/credit risk, liquidity risk, valuation risk, volatility risk and over-the-counter transaction risk.
Given RMB is currently not a freely convertible currency, payment of redemptions and/or dividend payment in RMB may be delayed due to the exchange controls and restrictions applicable to RMB. As offshore RMB (CNH) will be used for the valuation of RMB denominated Class(es), CNH rate may be at a premium or discount to the exchange rate for onshore RMB (CNY) and there may be significant bid and offer spreads and thus the value of the RMB denominated Class(es) will be subject to fluctuation. Any devaluation of RMB could adversely affect the value of investors’ investments in the RMB denominated Class(es) of certain sub-funds.

Manulife Advanced Fund SPC

Manulife Advanced Fund SPC is an umbrella fund comprising a number of sub-funds investing primarily in equity and bond securities, each of which has a different investment objective and risk level.
The sub-funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. A sub-fund may at its discretion pay dividend out of capital or gross income while charging / paying all or part of its fees and expenses out of its capital. This amounts to a return or withdrawal of part of an investor’s original investment or from any capital gains attributable to that original investment, and may result in an immediate reduction of the net asset value per share of the respective share classes after the distribution date.
Certain sub-funds with significant exposure to Renminbi (“RMB”) bonds/equity/assets or emerging markets, may involve debt instrument, credit/counterparty, concentration, liquidity, volatility, currency, tax, economic, foreign exchange/multi-currency conversion, down-grading, regulatory and political risks and these risks could be substantially higher than the risks normally associated with the world's more established markets.
A bond sub-fund may hold a significant portion of assets in deposits if there are not sufficient RMB instruments for it to invest in. This may adversely affect its return and performance.
Certain sub-funds using invest directly in debt instruments/shares via QFII regime, the Bond Connect and/or the Foreign Access Regime are subject to various requirements and restrictions under the laws of Mainland China related to investment in QFII and/or China Interbank Bond Market and custodial risks.
RMB is not freely convertible and is subject to exchange controls and restrictions.
Certain sub-funds may have significant concentrated exposures to particular industry sectors and geography's, which subjects investors to concentration and equity market risk.
Certain sub-funds may invest in equities of small- and mid-capitalization companies, which can expose investors to liquidity and volatility risks, and is subject to greater risk than is customarily associated with investments in larger capitalization companies.
Investment involves risk. The sub-funds may expose to a high risk of capital loss. Investors should not invest solely based on this material and should read the offering document for details including the risk factors, charges and features of the sub-funds.

Manulife Hong Kong Series

Manulife Hong Kong Series (“the Series”) is an open-ended unit trust comprising a number of funds primarily investing in equities, debt securities, exchange-traded funds and/or collective investment schemes, each of which has a different investment objective and risk level.
The funds do not guarantee distribution of dividends, the frequency of distribution, and the amount/rate of dividends. Dividends may be paid out of capital and/or out of gross income of certain funds in respect of Inc classes, while charging/paying all or part of certain funds’ fees and expenses to/out of capital of certain funds. This represents a return or a withdrawal of part of an investor's original investment amount or capital gain attributable to that amount. Distributions will result in an immediate decrease in the net asset value of the relevant units. Class AA (RMB) Inc Hedged Unit of certain funds is subject to higher distribution risks than other non-hedged unit classes.
Certain funds may involve equity market, emerging markets, Dim Sum bond market, concentration, volatility, liquidity, credit, credit ratings, below investment grade and unrated securities, credit rating downgrading, interest rates, valuation, sovereign debt, unlisted debt securities, political and regulatory, currency, foreign exchange, derivative and structured product, hedging, and distribution risks. Certain investors may also be subject to the risk relating to RMB hedged share class..
Certain funds are subject to the risks of investing in other funds and the risks relating to asset allocation strategy and/or downside risk management process.
Certain fund is subject to the risks relating to investment in exchange traded funds, Strategic and Tactical Asset Rebalancing Strategy (“STARS”), small- and mid-capped companies, convertible bonds and the risks associated with securitised debt instruments and investments in loss-absorption features. Certain fund is a feeder fund that invests all or substantially all of its assets in another collective investment scheme (the “master fund”) and is therefore subject to the risks of investing in the master fund.
Certain fund will not have direct investments other than cash, cash equivalents and financial derivative instruments (such as futures, options and forwards).
Investment involves risk. The funds may expose its investors to capital loss. Investors should not make investment decisions based on this material alone but should read the offering document for details, including the risk factors, charges and features of the Fund and its unit classes.