History suggests the PBoC rate cut could see China's equity bull market roar

Past performance is no guarantee of future returns.

We’ve all heard this disclaimer before. However, those who are China equity bulls will be hoping this rings true once more following the People’s Bank of China’s decision Sunday evening to reduce benchmark interest rates by 0.25% to 5.10%.

The daily chart below shows the reaction China’s Shanghai Composite has had to the two most recent rate cuts from the PBoC.

In the month following the bank’s decision to cut benchmark one-year interest rates by 0.4% in late November 2014 the index soared 26%. In late February this year, when the PBoC cut benchmark rates by 0.25%, the index returned 15% over the same period.

Following its worst weekly decline since July 2010 last week — 5.3% — many will be hoping the latest round of monetary easing will see past performance replicate future returns in the month ahead.

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