China Cuts Rates, Companies Increase Shares – McDonad’s Corp. (NASDAQ:MCD) in Focus

China has decreased its interest rates. Consequenty, McDonad’s Corp. (NASDAQ:MCD) increased the size of their fries. Five days after China made cuts in the interest rate, McDonad’s Corp. (NASDAQ:MCD)’s shares increased and outperformed all others in the market. The decrease in interest rates will act as a stimulus to drive the Chinese nation; the number of customers will increase for McDonad’s Corp. (NASDAQ:MCD), the fast-food king from America.

The companies that make gravel and stone, for construction purposes, also performed well in the market after China announced cuts. The performance was above that of other companies. Five days after the cut was made by People’s Bank, China, the stock of McDonad’s Corp. (NASDAQ:MCD) increased by 71%. The median return was of 2%. This cut may bring more good news to McDonad’s Corp. (NASDAQ:MCD).

Earlier this year, McDonad’s Corp. (NASDAQ:MCD) had to face a food scandal about one of its meat suppliers in China. As a result, some of the menu items had to be removed and the company lost its popularity in China. McDonad’s Corp. (NASDAQ:MCD) had to look for new meat suppliers. Same-restaurant sales dropped by 9.9% in the last quarter because of this, in the Middle East, Asia-Pacific and and Africa branches of the restaurant.

Meanwhile, the shares of Vulcan Materials (NASDAQ:VMC) increased by 71%, five days following the cuts by China Government. Martin Marietta Materials (NASDAQ:MLM) also increased by the same percentage in the same time duration. The median return for both companies was 3%.

However, ironically, neither Vulcan Materials (NASDAQ:VMC) nor Martin Marietta Materials (NASDAQ:MLM) sell construction materials to China. But, China is the second-largest economy in the world. So, when China cut its interest rates, it globally raised the prices of construction materials. This is because the cut starts a domestic build-out.

The rate of growth was decreasing in the economy for two years. So, after a couple of years of watching the show, PBOC surprisingly decreased their basis points for one-year lending rates. They cut 40 basis points from the benchmark, the new rate is 5.6%. This was the first move by PBOC in two years, which was made to counter the slowing growth in China.

Many companies in China have had to struggle against debt. The slow growth rates that have prevailed the Chinese economy for about 25 years, mean that the companies are unable to generate enough money to pay back their loans and so, find themselves indebted.

According to the chief Asia economist at the Capital Economics in London, the cut rates in China will reduce the pressures on bank borrowers. Typically, such companies are those that are state-owned. They will benefit the most from the new scheme.

The move by PBOC acknowledged the risks to the growth of the Chinese economy and ensures that the economy stays afloat even as it is expected to go lower. The court also described the rationale for changing its policy. One of the reasons was to give banks more relaxation so that they can set up their own interest rates.