PBOC’s latest move came at the end of a week-long national day holiday in China. When Chinese markets were closed last week, Hong Kong stocks fell for four consecutive days as investors grew increasingly concerned that the impact of the trade war is starting to show. Experts had expected the sell-off to spill over to the Shanghai and Shenzhen stock markets when they re-open on Monday.
But the RRR cut did little to calm nerves when stock markets in Greater China stumbled at the start of the week’s trading. Stocks in Shanghai and Shenzhen were down almost 3 percent on Monday morning, while Hong Kong was down close to 1 percent.
“China is a bit nervous. There is so much headwinds towards it now and I think it’s right to prepare for the worst and expect the best,” Gareth Nicholson, head of fixed income at Bank of Singapore, told CNBC’s “The Rundown” on Monday.
But Nicholson noted that if the trade situation deteriorates further, China will have a number of levers to save its economy because President Xi Jinping has “political capital.”
“I mean President Xi, if you think about it, he doesn’t have to worry about another election in six months, 12 months, 18 months. He has that kind of stability that if he needs to turn the taps back on, he doesn’t need to worry about saying ‘this pushes the budget out too much, too much debt,'” Nicholson added.
“He can worry about the debt problems three, four, five years down the line,” Nicholson said.
— CNBC’s Evelyn Cheng contributed to this report.