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China: Shares try to rally on global stimulus hopes

China's volatile shares tumbled again on Thursday, taking losses this month to about 25 per cent or 13 trillion yuan (US$2 trillion), while state media insisted that the market ructions did not reflect the real economy.

[SHANGHAI] Chinese shares tried to rally on Friday as hopes for more policy stimulus in Europe and Japan offered a much-needed but tenuous reprieve to oil and global equities.

The benchmark Shanghai Composite Index rose 0.8 per cent in early trade, recouping a little of Thursday's sharp losses. The CSI300 index of the largest listed companies in Shanghai and Shenzhen added 0.7 per cent.

Still, the mood was cautious as China's fickle markets have a habit of turning tail later in the day, often for no apparent reason.

Concerns about a near-term yuan devaluation were slowly fading as the People's Bank of China (PBOC) steered a steady course for the currency daily midpoint fix. Friday's fix was again barely changed at 6.5572 per dollar.

European and US markets took heart after European Central Bank President Mario Draghi dropped a heavy hint that more stimulus could come as early as March.

The unexpectedly forthright comments sliced 1 per cent from the euro as markets quickly priced in a rate cut for March, three months ahead of previous forecasts.

Speculation is also rife that the Bank of Japan might ease further, possibly as early as next week.

The central bank is "taking a serious look" at expanding its asset buying campaign as sliding oil prices make it ever harder to reach its 2 per cent inflation goal, the Nikkei newspaper reported on Friday.

All of which was grist to the mill for those expecting more action from the People's Bank of China (PBOC).

The central bank has already been generous with liquidity, pumping a net 315 billion yuan (S$68.9 billion) into the banking system ahead of the Lunar New Year holiday in early February.

It was the biggest weekly injection since January 2014 and analysts suspected it was larger than that warranted to avoid any hint of a cash crunch during the long holiday.

Officials also offered reassurances of support to investors, even if they appear not to be listening just yet.

Speaking in Davos on Thursday, Vice President Li Yuanchao said Beijing would use regulations to avoid volatility in a market that was "not yet mature". "An excessively fluctuating market is a market of speculation where only the few will gain the most benefit when most people suffer," Li said in an interview with Bloomberg.

Fang Xinghai, the vice chair of the Chinese Securities Regulatory Commission, was also at the World Economic forum and sought to counter concerns China was seeking to devalue the yuan to gain a competitive advantage for its exports. "A depreciation is not in the interests of China's rebalancing; a too deep currency fall would not be good for consumption," Mr Fang said.

China has jolted global markets twice in the last six months by allowing sudden, sharp slides in the yuan and then intervening aggressively to stabilise it, sparking confusion over its policy.