China shares end higher on global stim­u­lus hopes

The Pak Banker - - MARKETS/SPORTS -

China's frag­ile shares ended higher on Fri­day, in a rel­a­tively muted re­sponse to hints of more pol­icy stim­u­lus in Europe and Ja­pan that prompted a ro­bust rally in bat­tered oil prices and eq­ui­ties else­where.

While Ja­pan's Nikkei jumped nearly 6 per­cent and Brent crude was up more than 5 per­cent, the bench­mark Shang­hai Com­pos­ite In­dex man­aged a rise of just 1.25 per­cent, fol­low­ing sharp losses on Thurs­day.

The CSI300 in­dex of the largest listed com­pa­nies in Shang­hai and Shen­zhen closed up 1 per­cent. The in­dexes veered be­tween pos­i­tive and neg­a­tive ter­ri­tory dur­ing the day, with lit­tle vol­ume be­hind the trade. The Shang­hai Com­pos­ite did at least end the week marginally higher than it be­gan, for the first time in 2016, but not the CSI300.

In­vestors ap­pear in­creas­ingly re­luc­tant to risk their money on China's fickle mar­kets, which have slumped about 17 per­cent so far this year, and morn­ing gains have of­ten turned to losses by close of day as traders quickly take prof­its.

High­light­ing the lack of faith in the mar­kets, trad­ing vol­umes in Jan­uary have been about a third of typ­i­cal lev­els last year, which only ex­ag­ger­ates price move­ments.

On Thurs­day, Vice Pres­i­dent Li Yuan­chao sought to re­as­sure in­vestors that Bei­jing would use reg­u­la­tions to pre­vent volatil­ity in a mar­ket that was "not yet ma­ture". "An ex­ces­sively fluc­tu­at­ing mar­ket is a mar­ket of spec­u­la­tion where only the few will gain the most ben­e­fit when most peo­ple suf­fer," Li, who is at­tend­ing the World Eco­nomic Fo­rum in Davos, said in an in­ter­view with Bloomberg.

Mea­sured by ac­tions rather than words, reg­u­la­tors' at­tempts to curb volatil­ity, no­tably a new cir­cuit breaker mech­a­nism that was ditched af­ter three days of vi­o­lent falls, have con­spic­u­ously failed.

The stock mar­kets and China's yuan cur­rency have come un­der pres­sure as a raft of eco­nomic in­di­ca­tors have con­firmed the coun­try's de­clin­ing growth, putting the world's se­cond-largest econ­omy at the top of global in­vestors' worry list along with plung­ing crude oil prices.

There were some rare nuggets of good news on Fri­day, with data show­ing a pickup in lend­ing to China's prop­erty mar­ket, and that ur­ban un­em­ploy­ment was un­changed at 4.05 per­cent, com­fort­ably below the govern­ment's tar­get. But most econ­o­mists be­lieve China's real job­less rate is higher.

Con­cerns about an­other near-term yuan de­val­u­a­tion are slowly fad­ing as the Peo­ple's Bank of China (PBOC) has steered a steady course for the cur­rency daily mid­point fix in re­cent weeks. But cur­rency mar­kets re­main puz­zled over the for­mula the cen­tral bank is us­ing to de­ter­mine its value and say spot yuan will re­main un­der pres­sure as the econ­omy con­tin­ues to cool. Fri­day's fix was again barely changed at 6.5572 per dol­lar.

The spot yuan clung tightly to its pre­vi­ous close, as it has all week, while off­shore it weak­ened slightly to 6.6076, 0.4 per­cent adrift from the on­shore rate.

Euro­pean and U.S. mar­kets took heart af­ter Euro­pean Cen­tral Bank Pres­i­dent Mario Draghi dropped a heavy hint that more stim­u­lus could come as early as March.

His com­ments sliced 1 per­cent from the euro as mar­kets quickly priced in a rate cut for March, three months ahead of pre­vi­ous fore­casts.

Spec­u­la­tion is also rife that the Bank of Ja­pan might ease pol­icy fur­ther, pos­si­bly as early as next week. The cen­tral bank is "tak­ing a se­ri­ous look" at ex­pand­ing its as­set-buy­ing cam­paign as slid­ing oil prices make it ever harder to reach its 2 per­cent in­fla­tion goal, the Nikkei news­pa­per re­ported on Fri­day.

All of which was grist to the mill for those ex­pect­ing more ac­tion from the Peo­ple's Bank of China (PBOC). The cen­tral bank has al­ready been gen­er­ous with liq­uid­ity, pump­ing a net 315 bil­lion yuan ($48 bil­lion) into the bank­ing sys­tem ahead of the Lu­nar New Year hol­i­day in early Fe­bru­ary. It was the big­gest weekly injection since Jan­uary 2014 and an­a­lysts sus­pected it was larger than that war­ranted to avoid any hint of a cash crunch dur­ing the long hol­i­day.

There was also more re­as­sur­ance from of­fi­cial­dom in Davos. Fang Xing­hai, the vice chair of the Chi­nese Se­cu­ri­ties Reg­u­la­tory Com­mis­sion, sought to counter con­cerns China was seek­ing to de­value the yuan to gain a com­pet­i­tive ad­van­tage for its ex­ports. "A de­pre­ci­a­tion is not in the in­ter­ests of China's re­bal­anc­ing; a too deep cur­rency fall would not be good for con­sump­tion," Xing­hai said.

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