China shares end lower, pacing global share rout

Shanghai Composite ends 1 per lower, while Hang Seng tumbles 3.8 per cent

PUBLISHED : Wednesday, 20 January, 2016, 5:49pm
UPDATED : Wednesday, 20 January, 2016, 8:23pm

China’s share markets closed lower on Wednesday, though they managed to avoid sharper losses as a deepening rout ripped across global stock markets.

The Shanghai Composite Index eased 1.03 per cent, or 31.04 points to 2,976.69, after it gave the biggest daily rally in more than two months on Tuesday. Turnover expanded to 234.56 billion yuan (HK$278.56 billion) from 222.67 billion yuan on Tuesday.

The CSI300 fell 1.51 per cent, or 48.75 points to 3,174.38. The Shenzhen Composite Index lost 1.03 per cent, or 19.44 points to 1,876.31. While the Nasdaq-style ChiNext Index fell by 1.65 per cent, or 37.05 points to 2,204.65.

Sectors including transport, construction material and pharmaceuticals were under modest selling pressure following Tuesday’s rally. Sectors undergoing sharper losses included insurance, steel and mining.

“Investor sentiment is reviving from the recent low as the central bank’s actions temporarily stabilise the currency,” said Adam Xu, a mutual fund manager based in Shanghai.

“But most investors are holding low positions, waiting for more signals from the mainland and US authorities in March,” he said.

In Hong Kong, the benchmark Hang Seng Index sank to its lowest closing level since July 2012, dropping 3.82 per cent, or 749.51 points to finish at 18,886.3. The Hang Seng Enterprises Index tracking mainland based companies, plunged 4.33 per cent, or 362.36 points to 8,015.44.

Japan’s Nikkei 225 Index slumped 3.71 per cent to 16,416.19 on Wednesday, down 21 per cent from levels in June.

The China Securities Regulatory Commission announced on Tuesday evening that seven companies will kick off initial public offerings before the Lunar New Year, which falls on February 7 this year. But investors will be allowed to subscribe for shares without having to front the money to buy them, under a new model that does away with the capital lock-up.

Meanwhile, recent public comments and interviews by US Fed officials suggested they were likely to wait until March to decide on whether to raise interest rates.

In currencies, the People’s Bank of China (PBOC) announced on Tuesday night that it would inject at least 600 billion yuan into the interbank market, to ensure “reasonable and adequate” liquidity around the Lunar New Year holiday.

The liquidity will be added through tools such as standing lending facility, medium-term lending facility and pledged supplementary lending, the PBOC said in a statement on its website.

Ma Jun, chief economist at the People’s Bank’s research bureau, said these tools were acting as a “substitute for a reserve-ratio requirement (RRR) cut,” during an interview with China Central Television on Tuesday.

The PBOC was opting to these market-based monetary tools to avoid adding to further yuan depreciation expectations, Nomura said in a note Wednesday.

ING issued a report on Wednesday morning, saying more fiscal support is needed to help prop up the Chinese economy.

“New government bond issuance for local governments in 2016 reportedly will rise to 1 trillion yuan (1.5 per cent of GDP) from 600 billion yuan in 2015. The local government bond swap reportedly will be expanded to 5 trillion yuan from 3.2 trillion yuan. We also expect the fiscal deficit to increase toward 3 per cent of GDP from 2.7 per cent in 2015. ”