Chart of the day - CHN.cash (26.09.2024)

Chinese indices are gaining up to 5.00% in response to potential record-breaking aid packages being considered by the government. The Chinese market is also supported by improved sentiment in Europe and the USA, driven by falling oil prices and optimistic forecasts from Micron (MU.US).

Aid Package Supports Stock Prices

China is considering a significant capital injection of up to 1 trillion yuan ($142 billion) into its largest state-owned banks to bolster their ability to support the struggling economy. The funding, primarily from special sovereign bond sales, marks the first capital injection of this scale since the 2008 global financial crisis. This move follows recent broad reductions in mortgage and key policy rates aimed at economic revival. Despite having capital levels above regulatory requirements, banks like ICBC and Bank of China are facing record-low profit margins and rising bad debts, making this support crucial.

This capital infusion is expected to help banks manage increased credit risks as they are pressured by regulators to offer cheaper loans to high-risk borrowers, including real estate developers and local government financing vehicles. The push for higher dividend distributions to support the stock market has further strained the capital buffers of these systemically important banks, whose profits grew by just 0.4% in the first half of the year. The average net interest margin for China's commercial banks has dropped to a record low of 1.54%, threatening their profitability.

CHN.cash (D1 interval)

The index is breaking above the 7000-point level, increasing the total gain in September to over 20%. After establishing solid support levels at 5000 and 5800 points, the HSCEI index (CHN.cash) is ending a more than 3-year downward trend that began in early 2021. After breaking out from current levels, the next target for the upward movement could be the area just below 7800 points.

Source: xStation 5