Manufacturing index falls to three-month low
China’s equity market fell to its lowest level in a month on Monday after announcements from the Central Economic Work Conference failed to lift investor sentiment and manufacturing data disappointed the market. The benchmark Shanghai Composite Index declined 1.6 percent to 2,160.86, marking the longest stretch of losses since June.
Turnover stood at 86.4 billion yuan ($14.1 billion), edging up from 72.6 billion yuan on Friday.
“Bearish sentiment still prevails, and the market tends to react rather sensitively to information,” said Xin Yu, president of Guangzhou-based Zequan Investment.
The government will maintain continuity and stability in its macroeconomic policies in 2014 and stick to a prudent monetary policy and proactive fiscal policy, the statement from the annual CEWC said.
Analysts said there were no surprises from the CEWC or from the Urbanization Work Conference, which was also held last week. No growth target was announced by the CEWC and the UWC didn’t lead to any significant progress on rural land ownership reform.
“Messages sent by the two conferences have been consistent with this leadership’s stance of maintaining the stability of growth, improving the quality of growth and pushing forward structural reforms. I would say the impact on the market is neutral,” said Xin.
He said that tight year-end liquidity helped drive down the market on Monday, as did a “normal correction” after blue chips gained over the previous month.
The index had risen almost 8 percent as of early December, compared with mid-November.
“We are heading for the end of the year. Institutional investors are staying on the sidelines as companies close books at the end of the year, causing a drain on liquidity. The impending resumption of initial public offerings in January is also attracting capital,” said Zito Ji, a public mutual fund analyst based in Shanghai.
The flash PMI from HSBC Holdings Plc dropped to 50.5 for December from 50.8 in November, a three-month low, as output gains eased and employment weakened.
Analysts said that the weaker- than- expected figure hit investors’ confidence.
“The decline in the flash PMI suggests growth momentum has started to weaken. We believe this trend will continue in the first half of 2014, as market interest rates keep rising, pushing up financing costs for companies,” said Zhang Zhiwei, an economist with Nomura Holdings Inc.
The State Council, which is China’s cabinet, said on Saturday in a statement that the primary over-the-counter market is being opened to “qualified” companies from anywhere in the country. The statement was read by analysts as a further opening up of the OTC market to numerous small businesses.
Xin said that the move won’t divert capital from the A- share market, as the OTC market already was a major funding channel for relatively small companies.
Until now, however, only unlisted companies in hightech zones in four cities were eligible to raise funds through the national OTC market, called the National Equities Exchange and Quotations System. At present, 339 companies are listed on the market.
The benchmark Shanghai Composite Index declined 1.6 percent to 2,160.86 on Monday, marking the longest stretch of losses since June.