China Bucked Expectations By Doing Nought About Interest Rates

China Bucked Expectations By Doing Nought About Interest Rates
Paul Allison, CFA

about 1 month ago2 mins

Mentioned in story

What’s going on here?

China bucked expectations by doing nothing about interest rates on Monday.

What does this mean?

China’s economy has been the poster child for the ox zodiac over the last year, proving stubborn even in the face of the central bank’s escalating stimulus. So in the pursuit of transforming the economy into the lucky dragon instead, economists expected the bank to trim a key interest rate again. But instead, the rate was held steady at 2.5%. Now, that could be because there are already signs of building momentum. But the bank may also have decided that there’s essentially no point in cutting rates further: if folk and businesses have no interest in borrowing cash and loading up with debt, then a mildly lower interest rate would probably make little difference.

China interest rates

Why should I care?

Zooming out: Let’s get political.

Taiwan's recent election cemented an unprecedented third term for the country’s Democratic Progressive Party. The outcome was a bolster for the country’s stocks, sending the main index within inches of an all-time high. Thing is, the party stands for a democratic Taiwanese identity that’s separate from China, so despite Taiwan’s new president vowing to improve fraying relationships between the pair, the Chinese government has made it clear that this outcome doesn’t have its vote.

Taiwan stocks

For markets: Taiwan’s harboring a not-so-secret weapon.

Taiwan has an ace up its sleeve: TSMC, the world’s biggest chipmaker, makes up a third of the country’s stock market. Nvidia might have stolen investors’ attention last year thanks to ties to the artificial intelligence theme, but the American stock market darling doesn’t actually make its own superpowered chips – the likes of TSMC do. But while the chipmaker does have one plant in the US and a couple of factories in China, the bulk of TSMC’s production takes place in Taiwan. So investors may have a touch of the jitters: China’s frustrations could well escalate and interfere with the world’s chip supply.

Finimize

BECOME A SMARTER INVESTOR

All the daily investing news and insights you need in one subscription.

Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

/3 Your free quarterly content is about to expire. Uncover the biggest trends and opportunities. Subscribe now for 50%. Cancel anytime.

Finimize
© Finimize Ltd. 2023. 10328011. 280 Bishopsgate, London, EC2M 4AG