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Why interest rate cuts in China could be good news for you

by , 04 November 2015

The Chinese central bank, the People's Bank of China, just cut interest rates again. Whilst on the negative side it shows that the country's economy is struggling, it could be good news for investors.

So why is an interest rate cut a positive?

Read on to find out…

What happens in China when interest rates fall?

Looking over the past two decades, when China cuts interest rates, Chinese stocks go on to perform well.
There could be gains of over 30% up for the taking.
Have a look at the chart below. It shows what’s happened to stocks when the Chinese central bank reduced interest rates…
Chinese stock market performance and interest rates

As you can see, when the central bank reduced interest rates, stocks performed higher, Dr Steve Sjuggerud in Daily Wealth explains.
Interestingly, it’s not just a rate cutting cycle that has a positive effect, it’s each rate cut.

Interest rates cuts are good news for Chinese stocks

Since 1996, the People’s Bank of China has cut rates 19 times. On an average basis, after each cut stocks go on to:
  • Rise 3.6% in one month;
  • Rise 7.8% in three months;
  • Rise 18.6% in six months; and
  • Rise 31.0% in 12 months.
This shows that each time the Chinese central bank reduces interest rates, stocks go on to outperform.
After the falls in Chinese stocks this year, you may be scared to put money back in, but it’s time to put Chinese stocks on your radar.
Keep an eye on the trend. If it starts to show signs of rising, it may be worth investing.
So there you have it. Why interest rate cuts in China could be good news for you.
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Why interest rate cuts in China could be good news for you
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