China investors brace for volatility as global markets slide

[SHANGHAI] China's financial markets braced for more volatility on Monday as the central bank prepared fresh measures to curb yuan speculation and the securities regulator blamed immature markets and inexperienced investors for the latest meltdown.

Chinese shares tumbled again on Friday, with the Shanghai index closing lower than at any time since December 2014, leaving most investors who put their faith in Beijing's measures to end last summer's crash nursing losses. "After experiencing the crashes last year, the sentiment is quite vulnerable and pessimistic now," said Xiao Shijun, an analyst at Guodu Securities in Beijing.

China's central bank is preparing to raise the reserve requirement ratio for deposits placed in yuan clearing banks from Jan 25, in its latest bid to stem speculation in the currency, according to three sources who have seen the document outlining the change.

Market participants suspect the planned reserve increase is intended to soak up additional liquidity in the offshore yuan market as the central bank tries to stem speculative bets on further depreciation.

On Friday, the yuan weakened sharply offshore, opening up a gap of more than 1 per cent with the steady onshore market, despite central bank efforts earlier in the week to squeeze out speculators.

The turbulent start to 2016, with currency and stock markets tumbling, has stoked concerns that Beijing's policymakers were in danger of fumbling as China headed toward its slowest growth in 25 years.

China's major share indexes have lost 16-18 per cent so far in 2016, and although Friday's close was the lowest since December 2014, there has so far been no breach of the 2015 intraday lows chalked up in August, when the market lost more than 40 per cent in a summer crash.

Xiao Gang, head of the China Securities Regulatory Commission (CSRC), said at the weekend that the market rout had highlighted shortcomings in the country's regulatory mechanisms.

"The abnormal stock market volatility has revealed an immature market, inexperienced investors, an imperfect trading system, and inappropriate supervision mechanisms," Mr Xiao said at an annual meeting. His remarks were published on the CSRC website.

Global markets have also tumbled at the start of 2016, with Asian shares set to slide to near their 2011 troughs on Monday following weak US economic data and sharp falls in oil prices.

REUTERS