An investor pasts an electronic board showing stock information of Shanghai Stock Exchange Composite Index at a brokerage house in Beijing, August 26, 2015.
China’s turbulent stock markets turned sharply higher at midday on Wednesday, following Tuesday’s strong dose of central bank stimulus, though confidence in Beijing’s ability to jolt the economy out of its slowdown remained fragile.China’s two main stock markets, never a reliable barometer of the domestic economy, struggled to give a clear response to the central bank’s decision overnight to cut interest rates and further loosen bank lending restrictions (RRR).On another day of wild swings for China’s notoriously volatile bourses, the main stock indexes opened briefly higher, but a stampede of profit-taking took them lower for much of the morning until a strong rally kicked in before midday.European markets had risen sharply after the People’s Bank of China’s move on Tuesday, but U.S. indexes turned negative after an initial leap, displaying the mixed messages that would characterize the Asian day.In early afternoon, China’s CSI300 index .CSI300 was up 3.3 percent, while the Shanghai Composite Index .SSEC had gained 2.5 percent.The market’s early indifference was understandable, said Lim Say Boon, Chief Investment Officer at DBS Bank, as the policy moves would have little impact on consumption in a nation of savers, or investment in a country where government, not the “animal spirits of the private sector”, takes the lead.”What the market is waiting for (is) the ‘big bazooka’ of government spending,” he wrote in a note.There was also concern that the PBOC was simply playing catch-up. ANZ Bank noted that, even after four interest rate cuts since November, rising producer price deflation (PPI) was keeping real borrowing costs elevated.
“With the PPI at minus 5.4 percent y/y in July, the real interest rate costs could be well above 10 percent,” it said.”We believe that the traditional monetary policy easing, such as cutting RRR and lowering interest rate, is not sufficient to mitigate the risks associated with China’s highly leveraged economy,” it added.TIGHT LIQUIDITY
OCBC bank noted that cuts in the reserve requirements were needed to ease the liquidity pressures created by capital outflows that had been exacerbated by the yuan devaluation. It said it expected at least another 100 basis point cut this year.Japanese automaker Suzuki Motor Corp (7269.T) highlighted the problem manufacturers in China face, with its sales faltering …Read More