Markets plunge, despite central bank’s move to boost liquidity
SHANGHAI stocks registered their biggest daily loss in three and a half months yesterday, as China’s bourses fell heavily despite a move by the central bank over the weekend to reduce the reserve ratio for most lenders.
Analysts say the move was not enough to calm nervousness over the trade conflict with the United States.
The Shanghai Composite Index plunged 3.72 percent to close 104.84 points down at 2,716.51. The smaller Shenzhen Component Index fell 4.05 percent to 8,060.83 points and the Nasdaq-style ChiNext enterprise board lost 4.09 percent to close at 1,353.67 points.
The A-share market opened lower on the first trading day post the National Day Holiday and showed no signs of rebounding — with more than 3,000 stocks falling heavily.
Despite the central bank move, analysts said trade tensions with the US continue to weigh on the markets.
“An RRR (reserve requirement ratio) cut is not enough to counter the impact of the trade war. The economy is quite weak, and I see a growing number of companies selling their assets,” said David Dai, general manager of Shanghai Wisdom Investment Co Ltd, a hedge fund.
Market heavyweights were mainly negative. Liquor makers, insurance companies and carmakers were among the worst-performers. Shares of the SAIC Motor Corporation Limited, the largest auto company on China’s A-share market, slipped by the daily limit of 10 percent to close at 30.01 yuan (US$4.35).
The People’s Bank of China, the central bank, announced on Sunday that it would cut the amount of cash that most banks must hold as reserves from October 15 to lower the financing cost for the country’s real economy.
Reserve requirement ratios — 15.5 percent for large commercial lenders and 13.5 percent for smaller banks — will fall by 100 basis points, matching a similar-sized move in April. Economists expect further cuts.
Sunday’s move will inject a net 750 billion yuan (US$109.2 billion) in cash into the banking system by releasing a total of 1.2 trillion yuan in liquidity, with 450 billion yuan of that to offset maturing medium-term lending facility loans.
The PBOC’s latest move is designed at engineering a “credit impulse” to increase liquidity in the economy, said Raymond Yeung and Betty Wang, economists at ANZ Research.
Shenwan Hongyuan Securities said that the market will not see too much downward pressure in the fourth quarter and there is already basis for the market’s gradual stabilization.
The central bank said on Sunday it would continue to take necessary measures to stabilize market expectations, while maintaining a prudent and neutral monetary policy, ensuring reasonably ample liquidity to drive the reasonable growth of monetary credit and social financing. The RRR cut would not create pressure on the yuan, the PBOC said, adding it would keep foreign exchange markets stable.