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Friday, 22 January 2016 00:00 - - {{hitsCtrl.values.hits}}
SHANGHAI (Reuters): China’s fragile stock markets ended sharply lower on Thursday as oil prices gave up the day’s rally from 13-year lows and other Asian markets went into reverse.
With tumbling oil prices indicative of slowing global growth, in which China plays a central part, the benchmark Shanghai Composite Index ended down 3.2%.
That followed a morning session of up and down trade as the market lived up to a reputation for volatility, with moves amplified by low volumes.
The index has slumped more than 18% in 2016, as China’s currency has come under pressure and economic indicators have confirmed China’s declining growth, putting the world’s second-largest economy at the foreground of global investors’ concerns. At this level, investors who bought back into the market at the lowest point after regulators arrested a 40% crash last summer are back to square one.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen shed 2.9%, taking its losses for the year to more than 17%.
David Dai, Shanghai-based investor director at Nanhai Fund Management Co, said fears of a prolonged bear market were, nevertheless, overdone. “With stocks having fallen so much, much of the risk has been priced in and another free-fall is quite unlikely, although the chance of a sustainable rebound is slim,” he said. The yuan has also had a volatile start to 2016, having depreciated about 5% since August. After jolting global markets by allowing the currency to slide sharply early in January, the People’s Bank of China (PBOC) has kept a steady course for the yuan’s daily midpoint fix in the last two weeks.
Thursday’s fix was barely changed at 6.5585 per dollar. The market is allowed to deviate by 2% either side of the midpoint. “The yuan is under depreciation pressure, but China has the ability to control its pace, and indeed the yuan has already stabilised,” said Dai.
In the spot market, the yuan was at 6.5792, just a few pips softer than Wednesday’s close, while offshore it was 0.5% weaker at 6.6100. The central bank was also generous with liquidity ahead of the Lunar New Year holiday by injecting a net 315 billion yuan ($48 billion) into the banking system for the week to avoid a cash crunch during the long holiday.
It was the biggest weekly injection since January 2014, and came on top of other recent PBOC moves to avert any undue strains in coming weeks. The central bank said on Tuesday it would inject more than 600 billion yuan through various lending facilities.
The PBOC has acted aggressively to deter speculators from shorting the yuan, also known as the renminbi (RMB).
On Wednesday, the central bank said it would improve policy coordination to promote economic growth and curb financial risks, though it provided no details on steps or timing.
