Stocks fall on liquidity talk

Concerns grow over Federal Reserve’s next move on interest rates

Chinese stocks fell on Thursday on concerns that the central bank would tighten liquidity and on hints that the US Federal Reserve will hike US interest rates soon.

The Shanghai Composite Index closed the day with a 0.57 percent drop to 3,068.3 points. During the intraday trading, it tumbled 1.43 percent. A gauge of real estate companies slumped 1.56 percent, led by Yinyi Real Estate Co Ltd and Vanfund Urban Investment & Development Co Ltd.

The Shenzhen Component Index dropped by 0.76 percent, while the ChiNext startup index declined by 0.53 percent.

“The market is worried that the central bank will tighten liquidity, so the market interest rate has been rising in recent days,” said Hong Hao, chief strategist at BOCOM International Holdings Co.

The People’s Bank of China auctioned 50 billion yuan ($7.5 billion) of 14-day reverse repurchase agreements in open-market operations at 2.4 percent on Wednesday. It’s the first time since February that the PBOC used this type of contract.

The monetary authority continued its cash injections on Thursday, offering 140 billion yuan of seven-day reverse repurchase agreements and 80 billion yuan of 14-day contracts.

“There is speculation that the authorities are discouraging over-leveraging in the bond markets, which may have a chilling effect on the stock market,” said Zhu Daoqi, executive partner at Shanghai Winstyle Investment Management Cen- percent

Chinese bourses’ share of the global equity market in terms of capitalization the decline in the benchmark Shanghai Composite Index on Thursday

ter. “Investors are waiting for further signals from the central bank.”

Hong also said Federal Reserve Chair Janet Yellen will be speaking on Friday, which may reveal some hints about the Fed’s interest rate hike schedule.

Hong said the market implied probability of this year’s hike has risen to above 50 percent, and commodities and emerging markets have been on the retreat in the overnight market.

Another reason for the A-share market decline on Thursday may be that China on Wednesday imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks and crack down on illegal fundraising activities.

Chinese stocks as a whole make up 16 percent of all global equities by market capitalization, exceeding Europe’s 15 percent representation, said The Wall Street Journal citing data from Bespoke Investment Group.

It reported that Chinese stocks overtook European equities for the first time ever in 2015, but this didn’t last long as the Chinese market suffered a dramatic plunge a year ago. However, Chinese equities overtook their European counterparts once again on June 27 and remained on top since.