Early this year, market pundits pointed to China’s economic recovery as a catalyst for world equities. Beijing has decided to give that flagging hope some life by allowing local banks to cut deposit rates. That could help lift their sluggish profitability.
On Monday, news that more local lenders will do so prompted some of the sharpest gains for bank shares in almost a decade. That will distract investors from the current crackdown on the Chinese banking sector — the third largest by market weighting.
Even the largest state-owned lenders, including Bank of China and China Citic Bank, hit their daily trading limit of 10 per cent on the day. The fact that larger banks are following smaller peers in cutting deposit rates hints at a lasting trend. But it is too early to celebrate.