In­vestors spooked by PBOC’s lat­est money mar­ket in­ac­tion

China Daily (Hong Kong) - - BUSINESS COMPANIES - By GAO CHANGXIN in Shang­hai gaochangxin@chi­

The A- share mar­ket pro­longed its weak­ness dur­ing Christ­mas with a 1.58 per­cent drop on Thurs­day, as the cen­tral bank spooked in­vestors by halt­ing its sched­uled Thurs­day money mar­ket op­er­a­tion.

The year- to­date gain was trimmed to 5.58 per­cent, down from around 10 per­cent 12 trad­ing days ago on Dec 10.

The bench­mark Shang­hai Com­pos­ite In­dex was down 1.58 per­cent, 33 points, to 2,073. The Shen­zhen Com­po­nent In­dex lost 2.46 per­cent to 7,897 points. The ChiNext In­dex re­versed gains in the past two days and ended Thurs­day with a 1.46 per­cent loss.

A fear of tight liq­uid­ity is one of the rea­sons that caused the re­cent re­treat in the stock

A fear of tight liq­uid­ity is one of the rea­sons that caused the re­cent re­treat in the stock mar­ket.” ZHANG QI SHANG­HAI-BASED STOCK AN­A­LYST WITH HAITONG SE­CU­RI­TIES CO LTD.

mar­ket. Zhang Qi, a Shang­haibased stock an­a­lyst with Haitong Se­cu­ri­ties Co Ltd.

The Peo­ple’s Bank of China in­jected liq­uid­ity into the bank­ing sys­tem on Tues­day by sell­ing 29 bil­lion yuan ($4.8 bil­lion) of seven-day re­verse re­pur­chase agree­ments. The PBOC took the ac­tion af­ter money mar­ket rates grew to a level rem­i­nis­cent of the cash crunch in June, when some rates soared to an astro­nom­i­cal level of more than 30 per­cent.

The PBOC nor­mally con­ducts open mar­ket op­er­a­tions on Tues­days and Thurs­days. But the cash in­jec­tion was the first time since Dec 3 that it pro­ceeded with the sched­ule. The in­jec­tion brought down money mar­ket rates, with the bench­mark seven-day re­pur­chase agree­ment open­ing at 5.55 per­cent on Tues­day, down sharply from a clos­ing level of 8.9 per­cent on Mon­day.

The rate was 5.33 per­cent upon the close on Thurs­day, still higher than the 4.5 per­cent ear­lier this month.

The fact that the PBOC didn’t op­er­ate in the money mar­ket on Thurs­day had in­vestors wor­ry­ing rates will go up again soon, said Zhang.

The PBOC said in a state­ment on Dec 20 through its of­fi­cial mi­cro- blog ac­count that ex­cess re­serves in the bank­ing sys­tem are at a his­toric high level of more than 1.5 tril­lion yuan. It urged lenders to strengthen liq­uid­ity man­age­ment. The state­ment is widely in­ter­preted by the mar­ket as a sig­nal that the PBOC won’t as a mat­ter of course pour money into the bank­ing sys­tem.

In­vestors are also wor­ried that the sched­uled ini­tial pub­lic of­fer­ing re­sump­tion in Jan­uary will siphon funds away from ex­ist­ing shares and cause a re­treat in the mar­ket. The China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion has said at least 50 com­pa­nies will go pub­lic in Jan­uary af­ter a 14-month hia­tus.

China In­vest­ment Se­cu­ri­ties Co Ltd said in a re­port on Thurs­day that the Shang­hai Com­pos­ite In­dex will fluc­tu­ate be­tween 2,000 to 2,600 points in 2014. It cited the cen­tral bank tight­en­ing as one of the key risk fac­tors. It fore­cast a rally be­tween Fe­bru­ary and March, be­fore a re­treat in the sec­ond quar­ter.

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