Mainland stocks rally on hints of monetary easing
Just a day after showing signs of losing steam amid a bleak economic outlook, mainland stocks yesterday jumped the most in more than two months as investors bet on monetary easing.
The Shanghai Composite Index climbed 45.86 points or 1.96 per cent to 2,380.85 yesterday, the largest single-day gain since February 8, following a 0.9 per cent loss on Tuesday, which was the biggest drop in two weeks.
'As the market seemed to be turning bearish, this rally came as a surprise,' said Shenyin Wanguo Securities analyst Wei Daoke. 'Indeed, the index will meet a strong technical barrier at the 2,400-point level.
On Tuesday, the market reacted negatively to figures from the Ministry of Commerce that showed foreign direct investment had dropped for a fifth straight month in March.
Yesterday's gain resulted from speculation that Beijing would soon loosen monetary policy to bolster the economy, through measures such as cutting banks' reserve requirement ratio to help lenders increase credit. Talk of an imminent interest rate cut also contributed to the buying spree.
On the mainland, speculation and rumours about policy shifts often spark short-term rebounds in a weak market, but such rallies mostly turn out to be short-lived because of weak fundamentals. Analysts warned that yesterday's rally would also be met with a correction in the coming days.
The economy grew 8.1 per cent in the first quarter of this year, the slowest in nearly three years. The State Council has set a growth target for this year of 7.5 per cent, although it has set an 8 per cent growth in previous years.
The Shanghai index was among the world's worst performers in 2010 and 2011 but has advanced 8.2 per cent so far this year.
Yesterday's gain was partly buoyed by the International Monetary Fund raising its forecasts for global economic growth.
The IMF said the world economy would grow 3.5 per cent this year, revising up a previous prediction of 3.3 per cent.
The Shanghai index would fluctuate between 2,200 and 2,500, Wei said.