China stocks close lower after central bank announces rate cuts

(From China Daily)

Stocks closed lower Wednesday after swinging between gains and losses, as the rate cut sent mixed message to markets.

Investors look at computer screens showing stock information at a brokerage in Shanghai

The benchmark Shanghai Composite Index slumped 1.3 percent to 2,927.29 after rising as much as 4.3 percent and falling 3.9 percent, extending its steepest five-day rout since 1996,while the Shenzhen Component Index fell 2.9 percent to 9,899.72.

China’s central bank announced Tuesday evening that it would lower the benchmark deposit and lending rates by 25 basis points, hoping to further ease companies’ debt burdens and stem downward risks.

After the adjustment effective from Wednesday, the one-year benchmark lending rate would drop to a record low of 4.6 percent, and deposit rate to 1.75 percent, according to the People’s Bank of China.

Banks and insurers outperformed the benchmark on Wednesday, as China Merchants’ Bank surged 9.4 percent and Beijing Bank 9 percent. China Pacific Insurance, Ping An Insuranceand New China Life Insurance jumped more than 4 percent.

Along with the fifth rate cut since November, the central bank also cut the amount of money banks must hold, or the reserve requirement ratio, by 50 basis points for all financial institutions to keep a stable growth in credit.

The measure is to offset capital outflows, which have increased since the third quarter,according to economists.

Ma Jun, chief economist of the central bank’s research bureau, said the cut in interest rates and the reserve ratio will help to stabilize expectations, but it doesn’t change the “prudent”monetary policy.

The Shanghai gauge has nosedived 16.5 percent so far this week, extending last week’s 12-percent plunge, as market concerned that the slowdown of the world’s second-largesteconomy might deepen.

The Purchasing Managers Index, a main gauge of manufacturing activities, fell to 47.1 inAugust, marking its lowest level since March 2009, according to a preliminary reading of theCaixin PMI.

The rate cut will likely to “lift market sentiment from an extremely short-term oversoldposition”, said Wendy Liu, equity analyst with Nomura, in a note Wednesday, adding that the organization remains a year-end bullish view on the markets.

The CSI 300 Index closed at 3,025.69 on Wednesday, down 0.6 percent.

Most other Asian markets initially wavered but had appeared to regain buying momentum by early afternoon. Japan’s main Nikkei 225 stock index advanced 3.2 percent to 18,376.83, and South Korea’s Kospi gained 2.6 percent to 1,894.09.


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