China stocks plunge to 13-month low amid cap­i­tal out­flow con­cern

The Pak Banker - - MARKETS/SPORTS -

China's stocks tum­bled to the low­est lev­els in 13 months amid con­cern cap­i­tal out­flows will ac­cel­er­ate as the econ­omy slows and sup­port for the yuan eats into the na­tion's for­eign re­serves.

The Shang­hai Com­pos­ite In­dex plunged 6.4 per­cent to 2,749.79 at the close. All in­dus­try groups slumped, rang­ing from com­mod­ity shares to new-econ­omy sec­tors such as tech­nol­ogy. Be­sides data show­ing out­flows hit­ting an es­ti­mated $1 tril­lion last year, in­vestors were con­cerned about a pos­si­ble liq­uid­ity squeeze even as the cen­tral bank flooded the fi­nan­cial sys­tem with cash be­fore the up­com­ing Chi­nese new year hol­i­day.

Some of the na­tion's most ac­cu­rate fore­cast­ers said the stock in­dex may not bot­tom un­til it falls to the 2,500 level.

"It's an is­sue about con­fi­dence and there's no con­fi­dence in the mar­ket now," said Wu Kan, a fund man­ager at JK Life In­sur­ance Co. in Shang­hai. "The de­pre­ci­at­ing yuan and slow­ing eco­nomic growth have been haunt­ing the mar­ket for a while. We are less than two weeks from the spring fes­ti­val and it seems that most in­vestors are in no mood to trade any more." Tues­day's loss was the steep­est since Jan. 7, when the Shang­hai gauge plunged 7 per­cent, the se­cond sell­off of more than 6 per­cent in a week that prompted the govern­ment to can­cel its cir­cuit-break­ers pro­gram af­ter four days. Stocks dropped even as the Peo­ple's Bank of China in­jected 440 bil­lion yuan ($67 bil­lion) into the fi­nan­cial sys­tem us­ing re­verse-re­pur­chase agree­ments, the most in three years. Pol­icy mak­ers are try­ing to keep bor­row­ing costs from ris­ing as they con­tend with the slow­est eco­nomic growth in a quar­ter cen­tury.

China's gross do­mes­tic prod­uct growth is seen slow­ing fur­ther to 6.5 per­cent this year, from last year's 6.9 per­cent. Out­flows jumped in De­cem­ber, with the es­ti­mated 2015 to­tal reach­ing a record $1 tril­lion, more than seven times higher than the whole of 2014 based on Bloomberg In­tel­li­gence data dat­ing back to 2006.

"Cap­i­tal out­flows and de­mand for cash be­fore Lu­nar New Year may weigh on the stock mar­ket in spite of the re­cent mas­sive fund injection from the PBOC," said Huang Cen­dong, a Shang­hai-based an­a­lyst at Si­no­link Se­cu­ri­ties Co.

The CSI 300 In­dex fell 6 per­cent, led by in­dus­trial, en­ergy and tech­nol­ogy shares. XCMG Con­struc­tion Ma­chin­ery Co., China's big­gest crane maker, and Shen­zhen O-film Tech Co. plunged by the 10 per­cent daily limit. PetroChina Co., the largest en­ergy com­pany, dropped 4.7 per­cent. The Shang­hai Com­pos­ite's 47 per­cent rout since June has been ac­com­pa­nied by an econ­omy los­ing mo­men­tum, sim­i­lar to the global fi­nan­cial cri­sis, when the gauge lost more than two-thirds of its value from peak to trough over the course of a year. The gauge will bot­tom once it falls to 2,500 this year, said Michael Ev­ery, head of fi­nan­cial mar­kets re­search at Rabobank Group in Hong Kong. That matches the tar­get of Bocom In­ter­na­tional Hold­ing Co.'s Hao Hong, one of the few fore­cast­ers to call both the start and peak of China's last equity boom.

Thomas Schroeder, the man­ag­ing di­rec­tor of Chart Part­ners Group Ltd. who pre­dicted in Oc­to­ber that a re­bound in Chi­nese stocks wouldn't last, says the bench­mark in­dex will drop to 2,400. Huang Weimin, whose Chi­nese stockindex fu­tures wa­gers re­turned more than 6,200 per­cent last year, ad­vised in­vestors to sell shares as the stock mar­ket could drop an­other 15 per­cent in the first half as slow­ing growth and a weaker yuan fuel cap­i­tal out­flows. China has been burn­ing through re­serves to re­duce yuan volatil­ity as the cur­rency lost its sta­tus as a one-way bet on ap­pre­ci­a­tion amid an un­ex­pected de­val­u­a­tion in Au­gust. The stock­pile of re­serves plunged $513 bil­lion last year to $3.33 tril­lion, the first an­nual drop since 1992. For­eign ex­change re­serves are seen tum­bling $300 bil­lion this year to the $3 tril­lion level, ac­cord­ing to a Bloomberg News sur­vey. The Hang Seng China En­ter­prises In­dex de­creased 3.4 per­cent. The Hang Seng In­dex lost 2.5 per­cent, dragged down by fi­nan­cial and oil shares. The gauge has slumped 14 per­cent this year as the city's dol­lar peg came un­der pres­sure and short-term in­ter­est rates spiked.

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