Stocks slump as trade woes hit sentiment

Improving liquidity, solid fiscal revenue emerge as positive signs, say analysts

Chinese stocks plunged on Thursday to a 28-month low, but experts said there have been positive signs of improving liquidity and solid fiscal revenue.

The benchmark Shanghai Composite Index fell by 0.93 percent to 2,786.9 points, with liquor and consumer company shares continuing to decline amid escalating trade tensions and a falling yuan.

Shede Spirits Co Ltd decreased by 6.19 percent and the Anhui Gujing Distillery Co Ltd fell 5.62 percent.

The Shenzhen Component Index closed 1.06 percent lower at 9071.73 points. The ChiNext Index, which tracks China’s growth enterprise board, at one point jumped more than 1.6 percent, and overall declined by 0.17 percent to close at 1543.66 points.

Ming Ming, chief fixed income analyst at CITIC Securities Co Ltd, said that while the stock market is weak, liquidity conditions are improving.

China’s central bank had injected liquidity totaling 674 billion yuan ($101.7 billion) through open market operations this month by June 24.

The People’s Bank of China said on Sunday that it will cut the cash amount commercial banks are required to hold in reserve by 50 basis points starting from July 5, a measure to facilitate targeted lending to small and micro enterprises.

Fidelity International estimated the move will release liquidity totaling 500 billion to 700 billion yuan into the market.

“The transparency and efficiency of China’s monetary policies have improved significantly over the past years, which helped to minimize volatility and interruption in the markets,” said the Fidelity International statement. “This also provided long-term confidence to market participants.”

Liu Feng, chief economist of China Galaxy Securities Co, said solid fiscal revenue would be another positive sign of the long-term healthy development of the A-share market.

China’s fiscal revenue totaled 8.67 trillion yuan in the first five months, increasing 12.2 percent year-on-year. Tax revenue totaled 7.68 trillion yuan, increasing 15.8 percent.

Liu said China’s economic resilience is strong and the nation is advancing at its own pace to further reform and opening-up and high-quality economic development.

But Jonathan Garner, Morgan Stanley’s chief Asia and emerging markets strategist, said the firm lowered its 12-month target for the MSCI emerging-markets gauge to 1,000 from 1,160.

“This is a dangerous market,” Garner said. “We now think we’re heading to an outright bear market.”

In the spot market, the yuan opened at 6.6177 per dollar, and ended the onshore trading session at 6.6250 per dollar, the weakest official close in seven months.