China stocks slip as absence of policy measures add to worries

Hong Kong

CHINESE equities fell on Monday (Mar 21) as traders remained concerned about whether there would be adequate policy support to spur growth after lenders left borrowing costs unchanged.

The CSI 300 Index closed down 0.2 per cent after falling as much as 1 per cent. Rate-sensitive financial firms and property developers weighed on the market. The Hang Seng China Enterprises Index (HSCEI), which tracks Chinese companies listed in Hong Kong, dropped 1.7 per cent, reversing an earlier advance of 2.2 per cent.

Traders were disappointed after Chinese lenders left the loan prime rate unchanged on Monday and sought signs of other policies that may help sustain a recent rally. Speculation of more easing increased after a top financial committee led by Vice-Premier Liu He on Mar 16 vowed to make monetary policy more "proactive" in order to boost the economy and stabilise financial markets.

"Some may have clung on to expectations for an LPR (loan prime rate) cut today, which I think will come later when they assess the growth drag from the outbreak," said Wai Ho Leong, strategist at Modular Asset Management. "Peace talks and the Xi-Biden call also did not deliver substantive outcomes."

Monday's volatile trading session follows last week's roller-coaster ride, when Chinese shares staged a stunning reversal after a historic 2-day sell-off as the authorities stepped in. The HSCEI gauge had jumped 21 per cent in the span of 2 days, the most since 1998.

Whether the march higher will continue is another question. State-run Chinese Securities Journal on Monday continued to urge investors to be optimistic about the local stock market due to policy support. The newspaper also reported some 30 Shanghai-listed companies have proposed nearly 10 billion yuan (US$2.1 billion) of stock buybacks this month to shore up confidence.

Meanwhile, a gauge tracking Chinese real estate developers fell as much as 3.7 per cent. Moody's said Beijing's supportive measures will not defuse default risks for developers, and debt-laden China Evergrande Group suspended trading.

The CSI 300 financials index also underperformed the market, closing down 1.7 per cent. Economists expect a cut in the reserve requirement ratio soon, as well as a possible reduction in the medium-term lending facility rate next month.

"There may be an initial let-down, but the expectations for policy loosening are still on the table, and we expect an RRR (reserve requirement ratio) or rate cut to transpire in the second quarter," said Gary Ching, vice-president at the research department of Guosen (HK) Securities Co.

Traders also remain on guard over developments relating to the war in Ukraine following a meeting between Presidents Xi Jinping and Joe Biden on Friday. China's top envoy to Washington pledged his country "will do everything" to de-escalate the tensions in Ukraine after Xi assured Biden that his country did not want the war. BLOOMBERG