The People's Bank of China's (PBOC) recent policy measures have instilled renewed confidence in international markets, leading to a surge in Chinese concept stocks overnight. This marks their best performance in two years, coinciding with a significant appreciation of the Renminbi. On the morning of September 25, the offshore Renminbi exchange rate against the US dollar surpassed the 7.0 mark for the first time since May 2023.

PBOC Unveils Policy Combo

On September 24, the PBOC unveiled a comprehensive package of economic stimulus measures, including reductions in reserve requirements and interest rates, as well as housing loan policies releasing approximately 1 trillion yuan (approximately 140 billion USD) in funds. These measures aim to revitalize the housing market and stimulate economic growth.

At a press conference, PBOC Governor Yi Gang announced three major policy initiatives:

1. Reduction of deposit reserve ratio and policy interest rate, leading to a decline in market benchmark interest rates.
2. Reduction of existing mortgage loan interest rates and unification of the minimum down payment ratio for housing loans.
3. Creation of new policy tools to support stock market development.

The PBOC announced an immediate 0.5 percentage point cut in the reserve requirement ratio, with the possibility of an additional 0.25-0.5 percentage point cut later in the year. The central bank policy interest rate will also be lowered, with the 7-day reverse repurchase operation rate being reduced by 0.2 percentage points. Existing mortgage loan interest rates are expected to decline by around 0.5 percentage points, approaching the level of newly issued mortgage loan rates. Additionally, the minimum down payment ratio for second homes will be lowered from 25% to 15%.

Chinese Concept Stocks Surge

Driven by the PBOC's measures and pronouncements from financial officials aimed at bolstering the real estate industry and the broader economy, Chinese stock markets have experienced a robust rebound. This positive trend has extended to the US stock market, where Chinese concept stocks that had already rallied pre-market witnessed a collective surge overnight, closing up over 9%. This marks their largest gain and highest level in four months in 2022. Among them, Bilibili rose 17.02%, Li Auto rose 11.35%, JD.com rose 13.91%, Pinduoduo rose 11.24%, Alibaba rose 7.88%, and Baidu rose 7.40%.

(Source ：uSMART HK)

Bullish sentiment has also emerged in the options market, with FXI options trading volume surging to its highest level since February. The premium on one-month contracts betting on a 10% rise has jumped to its highest level since 2015, compared to contracts betting on a 10% fall, which had been heavily discounted in early August. In the largest single transaction of the day, an investor spent $6.75 million to purchase options to acquire 15 million shares at $33 per share by mid-November, betting on at least another 12% increase.

Meanwhile, the offshore Renminbi against the US dollar broke through the 7.0 mark, and commodity futures across the board rose sharply. The central parity rate of the Renminbi against the US dollar was set at 7.0202, an increase of 308 points.