End Of Financial Year 2015: China’s outlook fragile as financial reform roll …

30 Jun 2015 | Author: | No comments yet »

China stocks surge on govt moves to restore confidence.

A day later policymakers responded by cutting interest rates and banks’ reserve requirements, a move that served only to heighten concerns about the “fragile” outlook for the world’s second-largest economy.China stocks ended on Tuesday sharply higher, reversing a tumble in morning trade, as a slew of government measures to stem a two-week-long market tumble appeared to win back some investor confidence.China’s financial industry joined the nation’s securities regulator in moving to shore up the nation’s $7.7 trillion stock market, spurring the biggest rally in more than six years.Chinese stocks rallied late to close sharply higher on Tuesday, after early losses were wiped out by the central bank’s 50 billion yuan cash injection and the state pension fund announcing it would possibly pump up to 1 trillion yuan into equity investments.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 6.7 percent, to 4,473.00, while the Shanghai Composite Index gained 5.6 percent, to 4,277.22 points. Money managers should avoid panic selling because a “structural rally is brewing,” the Asset Management Association of China said in a letter to its members Tuesday.

China scrambled to launch a series of measures to bolster market confidence, after a weekend rate cut failed to temper panic selling that knocked main indexes down 20 percent from their mid-June peak. This rally was underpinned by the opening of a trade link with Hong Kong and a flood of new retail investors looking for somewhere other than the troubled real estate sector to put their money. China is considering steps to stabilize equities, the Economic Observer reported, while the finance ministry said it will allow the pension fund to invest in shares. China published draft rules to allow pension funds to buy stocks; state-run Xinhua said the correction is excessive; the country’s fund association urged hedge fund managers to make rational investment decisions; and major brokerage Guotai Junan Securities Co said it would lower margin requirements for certain blue chips. The Shenzhen Composite index added 4.8 per cent, or 112.823 points, to close at 2464.226, while the ChiNext board rallied 6.28 per cent, or 168.846 points, to finish at 2858.606, after dropping more than 7 per cent at one stage in the morning.

It also appeared to be a state-sanctioned rally, as a string of positive editorials in the predominantly government-owned media encouraged people to buy. The gains seemed to calm a jittery market after more than a trillion dollars in market value had been wiped out over the previous few weeks, amid fears that the market’s bull run was coming to an end. Other measures the government can take to fight the steepest stock-market rout since 1996 include halting initial public offerings, reducing stamp duties or cutting lending rates, according to Bank of America strategist David Cui. Ghadir Abu Leil-Cooper, head of EMER at Barings asset management, said: “As is clear from the reaction of markets today, the consensus view on Friday was that the situation was likely to be resolved in a way which would allow Greece to continue to receive funding from the Eurozone.” The Hang Seng is up 11.40 per cent in the first half of 2015. Margin debt on the Shanghai Stock Exchange fell for a sixth day on Monday to 1.36 trillion yuan ($219 billion), the longest stretch of declines since June 2014, while the benchmark gauge’s 10-day volatility reading jumped to the highest since 2008.

Gerry Alfonso, a sales trader at Shenyin & Wanguo in Shanghai, said more volatility is likely to come as Beijing tries to take some pressure off the country’s equity markets, which tend to pay more attention to Chinese government policies or liquidity levels because of the abundance of retail investors. The government is considering a delay in the IPO of China Nuclear Engineering Corp. because of market conditions, according to people with knowledge of the matter, who asked not to be identified because the information is private. The government had, after all, seemed to encourage investors to pile into stocks earlier this year, aided by optimistic reports published by the state-run news media. It said it may consider investing up to 30 per cent of its net assets in equity investments, potentially pumping billions into the country’s sputtering stock markets. “The pension fund aims to emphasise the importance of investment, moving away from the traditional way of putting money in our saving accounts,” said Zheng Bingwen, an official at the China Academy of Social Sciences, a leading think tank of the State Council.

Greece is staggering deeper into the economic unknown, saying it will miss a payment to the International Monetary Fund today and leaving the protection of Europe’s bailout regime at midnight. The Nikkei 225 index rose 23.05 points to 20,133 by the midday break, having fallen 2.88 per cent on Monday, but the Topix index slipped 0.17 percent, or 2.80 points, to 1,622.02.

However, inventories are still high and investors are under pressure in places like Shenyang, in north-east China, or Chongqing in the country’s west. Guotai Junan announced measures Tuesday that increased the amount investors can borrrow and made it less likely they will face margin calls. “As more people get burnt, the government feels more pressure,” said Ronald Wan, the chief executive officer of Partners Capital International in Hong Kong. “A disorderly decline will affect stability in the Chinese economy.

Developers’ land purchases are down by almost 40 per cent from a year ago and investment growth is at a record low of a little more than 5 per cent for the first five months of 2015. That is feeding through to other parts of the economy and resulting in less demand for steel and construction-related material and, importantly for Australia, affecting the outlook for commodities like iron ore. The regulator responded by urging funds to stabilize the market and allowing companies to buy back their own shares, which sparked a 12 percent rally over four days. On the positive side, there is growing evidence China is rebalancing its economy away from a reliance on public investment to one driven by consumption.

Those gains have shrunk by more than half in the past two months as the central bank and government bought foreign currency in moves analysts said were aimed at stemming the rally to keep Russian exports more competitive. There will be “further weakness” next quarter in part due to foreign-currency bond maturities, Yury Tulinov, the head of research at PAO Rosbank in Moscow, said by e-mail.

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