China’s stocks stage comeback after central bank unleashes funds by lowering reserve requirements

Financial stocks rally in the mainland and Hong Kong after the People’s Bank of China cuts the reserve requirement ratio by 1 percentage point, releasing about 1.3 trillion yuan in liquidity.

PUBLISHED : Wednesday, 18 April, 2018, 9:25am
UPDATED : Wednesday, 18 April, 2018, 11:29pm

China’s stocks staged a V-shaped rebound to reverse the intraday loss after the central bank said it would cut the reserve requirements for some banks and chip makers advanced on prospects that Beijing will give more support to the home-grown semiconductor industry amid mounting US-Sino trade tensions.

The Shanghai Composite Index rose 0.8 per cent, or 24.60 points, to 3,091.40 at the close on Wednesday, snapping a decline of 4.4 per cent over the past four days. The CSI 300 Index of big-caps added 0.5 per cent, while the ChiNext gauge of start-ups rebounded 2.2 per cent. Hong Kong’s Hang Seng Index also ended the day higher.

Buying came in towards the end of the morning session, eventually wiping out an intraday drop of as much as 0.8 per cent. The 1 percentage point cut in the reserve requirement ratio, effective on April 25, will be applied to most commercial and foreign banks, the People’s Bank of China said in a statement on Tuesday night. The cutback will enable banks to pay back about 900 billion yuan (US$143.2 billion) of debts borrowed via medium-term lending facility and free up an additional 400 billion yuan, the statement said.

“The targeted cut in the reserve requirement is more or less meant to cushion the recent risk events, and the monetary policy may be in the process of being fine-tuned” said Li Lifeng, a strategist at Sinolink Securities in Shanghai. “The A-share market will probably consolidate in the short term.”

Mainland equities also rebounded on speculation that China will delay the implementation of new rules governing its US$16 trillion asset-management products after the trade tensions with the US sent jitters through the financial markets. The rules have been widely seen as a move that will hold back stocks by restraining liquidity.

The gains were broad-based, with every five stocks rising for each two that fell on the Shanghai Composite. Bank of Chengdu led the gain among commercial lenders, with the stocks rallying 3.5 per cent to 10.99 yuan. Industrial and Commercial Bank of China rose 1.6 per cent to 5.88 yuan and China Merchants Bank also gained 1.6 per cent to 28.14 yuan.

The A-share market will probably consolidate in the short term
Li Lifeng, Sinolink Securities

Semiconductor stocks climbed on expectations that the US ban on the purchase of key technology by Chinese telecom giant ZTE will be a catalyst for the nation to increase support for the industry.

Beijing Beetch, a maker of electronic components from wireless vibration nodes and sensor chips, surged by the 10 per cent daily limit to 56.53 yuan. Sinosun Technology, which makes payment password systems and password chips, also jumped 10 per cent to 9.13 yuan.

In Hong Kong, the Hang Seng Index climbed 0.7 per cent, or 221.50 points, to 30,284.25, arresting a four-day decline. The Hang Seng China Enterprises Index also added 0.7 per cent.

Financial stocks contributed the most to the gains on the benchmark. AIA Group added 2.4 per cent to HK$69.05. ICBC rose 1.5 per cent to HK$6.69 and China Construction Bank climbed 1.1 per cent to HK$7.98.

Carmakers slumped after China said it would phase out the rules requiring foreign investors to find a local partner before setting up a plant over the next five years, fully opening up the world’s largest auto market.

Geely Automobile Holdings slid 2.5 per cent to HK$21.85 yuan, capping a six-day, 9.5 per cent drop. BAIC Motor tumbled 10.2 per cent to HK$8.02 and Guangzhou Automobile Group sank 11 per cent to HK$12.90.