Small- cap gains bolster stocks after Moody’s credit downgrade

China’s main stock indexes recouped early losses to end just about even Wednesday, as strong gains in small caps partially offset Moody’s downgrading of China’s debt ratings.

The blue- chip CSI 300 Index was unchanged at 3,424.17 points.

The benchmark Shanghai Composite Index inched up 0.07 percent to 3,064.08 points, while the Shenzhen Component Index closed 0.50 percent higher at 9,812.46 points.

Small caps rallied, with the tech- heavy start- up board ChiNext rising 1.03 percent to 1,776.28 points.

Moody’s Investors Service downgraded China’s long- term local and foreign currency issuer ratings on Wednesday. The benchmark stock index fell more than 1 percent shortly after the market opened, but recouped most of the losses to close roughly flat.

The market has already been hobbled in recent weeks amid signs that the country’s regulatory crackdown on shadow banking and risky investment is pushing up short- term borrowing costs and threatening to slow the economy.

In a rare sign of tightening liquidity in the interbank market, the one- year Shanghai Interbank Offered Rate was at 4.322 percent, exceeding the one- year Loan Prime Rate at 4.3 percent.

Morgan Stanley said in a report Wednesday that China’s interbank interest rates can rise by another 40- 50 basis points from current levels in the coming months, to keep pace with the US Federal Reserve’s tightening moves.

Most sectors lost ground, led by defensive consumer and healthcare stocks.

Hong Kong stocks rose for a fourth day on Wednesday to a fresh 22- month high.

The Hang Seng Index closed 0.10 percent higher at 25,428.50 points.

Brokerage CICC estimated that mainland money flows into Hong Kong stocks would average 200- 400 billion yuan ($ 29-$ 58 billion) over the next few years, or 1- 2 billion yuan each trading day, according to China Securities Journal.