Shares lan­guish de­spite China in­ter­est rate cut

The China Post - - BUSINESS INDEX & -

Shares fell Wed­nes­day in Europe and Asian mar­kets were mixed as an ini­tial burst of eu­pho­ria over an in­ter­est rate cut by main­land China the day be­fore suc­cumbed to lin­ger­ing wor­ries over longer-term prob­lems with its econ­omy.

Euro­pean shares fell back from their surge the day be­fore fol­low­ing Bei­jing’s an­nounce­ment late Tues­day that it was eas­ing mon­e­tary pol­icy to help sta­bi­lize gy­rat­ing mar­kets and counter short liq­uid­ity.

The UK’s FTSE 100 slipped 1.4 per­cent to 5,997.09, Ger­many’s DAX dropped 1.2 per­cent to 10,008.51 and the CAC- 40 in France shed 1.3 per­cent to 4,506.19. How­ever, Wall Street in­vestors looked ready to plunge back in and buy, with Dow fu­tures up 1.3 per­cent on Wed­nes­day and S&P fu­tures up 1.4 per­cent.

China’s own bench­mark, the Shang­hai Com­pos­ite In­dex, dropped late in the day, los­ing 1.3 per­cent af­ter a volatile se­ries of ups and downs. That fol­lowed a 7.6 per­cent slump on Tues­day and an 8.5 per­cent loss the day be­fore. But stocks in Ja­pan, South Korea and Aus­tralia gained.

Mar­kets have been zigzag­ging for weeks on deep­en­ing un­ease over the ram­i­fi­ca­tions of slow­ing growth in China, the world’s sec­ond-largest econ­omy and the driver of much of the global growth of the past decade.

So, many in Asia went to bed on Tues­day smil­ing over main­land China’s de­ci­sion to slash its key in­ter­est rate, only to awaken to yet another de­cline overnight on Wall Street, Ni­cholas Teo, an an­a­lyst at CMC Mar­kets, said in a com­men­tary. “All of a sud­den, China and the per­for­mance of the Chi­nese mar­kets have now taken the lead in de­ter­min­ing daily di­rec­tion for trad­ing in stocks world­wide,” he said.

The ap­par­ent in­abil­ity of Chi­nese reg­u­la­tors to calm the mar­kets has spooked in­vestors al­ready fret­ting over when the U.S. Fed­eral Re­serve will raise in­ter­est rates.

The U.S. Fed­eral Re­serve has sig­naled it could be­gin rais­ing its key in­ter­est rate from near zero for the first time in nearly a decade as early as this year. But it is not ex­pected to de­liver a pol­icy up­date un­til it wraps up a meet­ing of pol­i­cy­mak­ers in midSeptem­ber.

‘Not in a po­si­tion to ad­dress both

chal­lenges at the same time’

In a last-minute sell-off Tues­day, the Dow Jones in­dus­trial dropped 1.3 per­cent, ex­tend­ing Wall Street’s los­ing streak to six days, the long­est such stretch in more than three years. The Dow had surged more than 400 points Tues­day af­ter China cut its in­ter­est rates for the fifth time in nine months in a re­newed ef­fort to shore up growth. The Chi­nese cen­tral bank also in­creased the amount of money avail­able for lend­ing by re­duc­ing the re­serves banks are re­quired to hold.

Those moves have al­le­vi­ated a crip­pling short­age of cash avail­able for fund­ing, but do not ad­dress the wider prob­lems be­hind a slow­down that is crimp­ing de­mand for oil and other com­modi­ties, slow­ing ex­ports and other busi­ness ac­tiv­ity across Asia.

“This move may help calm the mar­kets in the short term. But it will likely not be enough to fix China’s growth prob­lem,” Credit Agri­cole econ­o­mists said in a re­search note.

The big­ger, more in­tractable prob­lem is how to re­bal­ance the econ­omy away from ex­cess re­liance on in­vest­ment in con­struc­tion and prop­erty in­vest­ments with­out tip­ping the econ­omy into con­trac­tion. “Bot­tom line, China is not in a po­si­tion to ad­dress both chal­lenges at the same time to­day,” they wrote.

Fears of stalling growth in China, the world’s sec­ond-largest econ­omy, sparked one of the worst routs since the global fi­nan­cial cri­sis, with com­modi­ties, emerg­ing mar­ket cur­ren­cies and shares all div­ing.

Traders said the rate cuts had re­stored some con­fi­dence that Bei­jing would act to shore up both its econ­omy and its stocks, but more needed to be done to calm fraz­zled in­vestors.

“A cir­cuit-breaker is needed to dis­pel ex­ces­sive pes­simism and re­store con­fi­dence,” Fred­eric Neu­mann, co-head of Asian eco­nom­ics re­search at HSBC in Hong Kong, told Bloomberg News. “Fur­ther sup­port mea­sures in the com­ing weeks and months will be needed.”

Still, many in Asia took heart from main­land China’s moves.

Ja­pan’s Nikkei 225 stock in­dex ad­vanced 3.2 per­cent to 18,376.83, South Korea’s Kospi gained 2.6 per­cent to 1,894.09 and Aus­tralia’s S&P ASX/200 rose 0.7 per­cent to 5,172.80, helped by buy­ing of re­source-re­lated shares. Shares also rose in Tai­wan.

But Hong Kong’s Hang Seng in­dex fell 0.5 per­cent to 21,305.17, and main­land China’s smaller Shen­zhen Com­pos­ite In­dex lost 3.1 per­cent. Mar­kets were also lower in most of South­east Asia. Welling­ton lost 0.63 per­cent, or 35.51 points, to 5,577.78 and Manila rose 0.55 per­cent, or 37.58 points, to 6,867.92.

Gold traded at US$ 1,136.72 com­pared to US$ 1,149.80 late Tues­day.

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