Sunday 21 January 2018

China down again as Beijing rushes to calm markets

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Click to view full size graphic

Samuel Shen and Pete Sweeney

Chinese shares fell once again yesterday, as Beijing scrambled to prop up a stock market whose wild gyrations have heightened fears about the financial stability of the world's second biggest economy.

After a plunge of more than 8pc in major indices on Monday, Chinese regulators said yesterdday they were investigating share "dumping" incidents.

Earlier the China Securities and Regulatory Commission (CSRC) said it was prepared to buy shares to stabilise the market. The central bank injected cash into money markets and hinted at further monetary easing.

Despite the moves aimed at bolstering confidence, the Shanghai Composite Index fell 1.7pc yesterday, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen dipped 0.2pc.

Big swings yesterday saw both indices lurching between losses as deep as 5pc and gains of more than 1pc. "Retail investors' confidence in the mainland market is very weak," said Steven Leung, a director from UOB Kay Hian in Hong Kong.

Monday's dramatic slide shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention in which authorities pumped liquidity into the market while effectively barring many investors from selling.

The rapid sell-off, which saw China's major indices suffer their biggest one-day loss in more than eight years, may have been partly due to authorities testing the water for withdrawing some of that heavy-handed support.

Three people in the banking industry with direct knowledge told Reuters on Monday that the state-run margin lender had returned ahead of schedule some of the funds it borrowed from commercial banks to stabilise the stock market.

"The authorities picked an inopportune time to float a trial balloon about scaling back market support operations," wrote Tim Condon, head of research Asia for ING Bank in Singapore, in a note yesterday.

Economists at Nomura said China's economy was "far from being in a crisis scenario", but that shaken investors could cut spending, which could impede a recovery that had been expected later this year.

Market watchers also fear that some companies may be facing heavy losses after speculating in stocks.

But the renewed turbulence has raised questions about the long-term viability of Beijing's strategy of intervening to control its markets.

"Monday's plunge showed the Chinese authorities that even governmental measures have their limits," said Bernard Aw, market strategist at IG in Singapore. "It's anybody's guess what else they can do to shore up market sentiments.

Despite a slowing economy, China's main stock indices had more than doubled over the year to mid-June, when a sudden plunge wiped out $4 trillion in a matter of weeks. (Reuters)

Irish Independent

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