Thursday 18 January 2018

'Great fall of China' averted as stocks begin to rebound

People walk past a statue of bull in front of an investment company at a financial district in Beijing, China.
People walk past a statue of bull in front of an investment company at a financial district in Beijing, China.

Samuel Shen and Engen Tham

Chinese stocks rose strongly for a second day on Friday, buoyed by a barrage of government support measures, but worries persist about the long-term impact that four weeks of market turmoil may have on the world's second-largest economy.

Over the past two weeks Chinese authorities have cut interest rates, suspended initial public offerings, relaxed margin lending and collateral rules and enlisted brokerages to buy stocks, backed by cash from the central bank.

Some analysts predict further moves to come from the People's Bank of China, which often makes policy announcements over the weekend, such as another rate cut or relaxation of the amount of cash banks must hold as reserves (RRR).

The frantic efforts to stem a more than 30pc market slide finally began to gain traction on Thursday, when shares rose around 6pc after the securities regulator banned shareholders with large stakes from selling.

The CSI300 index of the largest listed companies rose another 5.4pc yesterday, while the Shanghai Composite Index closed up 4.5pc.

"Chinese investors move in herds," said Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management. "After panic selling drove the market down to the extreme, prices are now starting to move in the other direction."

At the depths of their slump earlier this week Chinese shares had fallen by close to a third from their mid-June peak, and for some global investors China's market turmoil had become a greater concern than the crisis in Greece.

In the first sign that market losses could feed through into depressed spending in the broader economy, China's automakers association more than halved its 2015 forecast for vehicle sales growth to 3pc, from 7pc yesterday.

"The stock market has some impact on car sales as it hurts cash flow," association chief Dong Yang told reporters.

Premier Li Keqiang said China would make more targeted policy changes to support the economy, although he did not comment on the stock market.

"We do not take the risks and challenges to growth lightly. We have the ability and confidence to prevent regional systemic risks and keep the economy growing within a reasonable range," he said.

China is set to release its second-quarter economic growth report on Wednesday, and analysts polled by Reuters expect activity to slow to 6.9pc from 7pc in Q1.

Russian President Vladimir Putin said Chinese authorities were reacting "calmly" to events on the stock market. "I think China will remain an engine of the global economy," he said after meeting President Xi Jinping in the Russian city of Ufa.

Analysts at Bank of America Merrill Lynch said in a research note that the biggest damage from the market turmoil was likely to be the denting of investors' faith in the ability of Chinese policymakers to manage asset prices smoothly.

The BofA Merrill analysts also expected the ripple effect to hit the real economy, but other economists said the tumult was unlikely to have a big impact on consumption.

Julian Evans-Pritchard at Capital Economics said only a relatively small, wealthy portion of the population owned shares.

Irish Independent

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