TD: Asian stocks slump as Chinese margin crackdown offsets easing
SHANGHAI – Asian markets fell in volatile trade today (April 20), led by the plunge in Chinese shares as a regulatory crackdown on the world’s hottest stock market offset the central bank’s aggressive move to bolster the slowing economy.
A cut in banks’ reserve ratio requirements (RRR) by 100 basis points to 18.5 per cent by the People’s Bank of China (PBOC) on Sunday was the largest since the global financial crisis, but markets reacted half-heartedly as traders focused on moves by the securities regulator which they feared could pop a six-month rally.
Chinese stocks had risen early in the session and at one point touched fresh seven-year highs, but those gains quickly evaporated on concerns that regulators want to slow the pace of the rally in a market that has already bolted more than 80 per cent since November, thanks in large part to borrowed money.
Securities regulators had announced after the market closed on Friday that they would ban margin financing through unregulated accounts and allow fund managers to lend shares for short-selling.
“The government wants a slow bull market, not a crazy bull,” said Mr Wang Yu, an analyst at Pacific Securities.
Among the key Asian bourses, China’s Shanghai Composite Index plunged 1.6 per cent yesterday, Hong Kong’s Hang Seng Index lost 2 per cent, Japan’s Nikkei-225 Index eased 0.1 per cent while Singapore’s Straits Times Index was down 0.6 per cent. The yuan weakened about 0.1 per cent to 6.2018 to the US dollar and 4.6055 versus the Singapore dollar.
Investors had widely expected PBOC easing action following data last week which showed Chinese money supply growth, industrial activity and economic expansion at multi-year lows, but the latest cut was bigger than expected.
Economists are unsure how much of the estimated 1 trillion yuan (S$217.1 billion) in cash freed up by the latest RRR cut will find its way into new bank loans and real economic activity, with many suspecting a fair chunk will flow into stocks given their far superior returns to other investments at present. - AGENCIES
