China’s central bank, the People’s Bank of China (PBOC), surprised the markets by announcing its most considerable fiscal stimulus since the pandemic, which will be vital to its sluggish economic recovery. The monetary measures include cutting the Reserve Requirement Ratio (RRR) by 50 basis points and reducing the 7-day repo rate by 20 bps to 1.5%. This decision comes after a series of disappointing economic indicators, which have increased expectations that the country will miss its growth target of 5% this year. The stimulus is expected to reduce borrowing costs and allow banks to increase their lending, enabling corporations and individuals to take out loans. Additionally, it will inject about one trillion Yuan (approximately US$142 billion) into the economy.

The government also pledged to disburse a one-time cash allowance to people experiencing extreme poverty, albeit briefly, leading to a slight uptick in domestic spending. Further measures to boost China's crisis-hit property market include cutting interest rates for existing mortgages and lowering the minimum down payment on all types of homes to 15%. This support is crucial, as the country’s real estate market contributes approximately 25-30% to its overall GDP and has struggled with a sharp downturn since 2021. Other measures include cutting the minimum down payment ratio for second homes, reducing prime mortgage rates, and providing liquidity for land purchases. The government also prioritized the need for longer-term policies to promote consumption, increase middle-class and low-income salaries, and encourage foreign investment in manufacturing.

Simpan Views

The Impact We Saw Recently

Following the recent announcement of China's economic stimulus measures, markets reacted positively, with indices like the Hang Seng Index and the JCI experiencing gains. While this initial sentiment is encouraging, the full economic implications will become clearer as these policies are implemented.

The Potential Impact on Our Country

Indonesia is a significant exporter of natural resources to China, including coal and various precious metals such as nickel, copper, and aluminum. Given China's significant role as Indonesia’s largest net importer, particularly for industrial commodities, any economic stimulus measures implemented by China could have a direct impact on Indonesia's trade balance and domestic economy.

We believe that Indonesia's commodity-rich sectors, particularly metals and mining, are well-positioned to benefit from China's economic recovery. The increased demand for these commodities could lead to higher earnings for companies in these sectors.

Investment Opportunity and Portfolio Positioning

We have increased our equity allocation in the metal and mining commodities sectors in the past few months due to attractive valuations and positive long-term prospects. In light of China’s recent development, we remain positive, given China’s continued demand in the sector for Indonesia and, in turn, the companies we have invested in. 

The Simpan Sustainable Equity Fund offers an opportunity to invest in these sectors, aiming to maximize returns and support your long-term financial goals. 

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