China Market tumbles on capital outflow concerns

The Mainland China share market finished session steep lower on Monday, 22 February 2021, as concerns grew of a gradual tightening in lending conditions after one-year loan prime rate (LPR) in China was left unchanged at 3.85% and China's potential plans to allow more capital outflows.

At closing bell, the benchmark Shanghai Composite Index declined 1.45%, or 53.72 points, to 3,642.45. The Shenzhen Composite Index, which tracks stocks on China's second exchange, dropped 2.11%, or 51.99 points, to 2,416.67. The blue-chip CSI300 index fell 3.14%, or 181.51 points, to 5,597.33.

The People's Bank of China (PBOC) on Saturday kept on hold their benchmark loan prime rate, which is set by China's largest commercial lenders and uses an official central bank interest rate as its floor. China kept the one-year loan prime rate (LPR) unchanged at 3.85%. The rate has not moved since it dropped to 3.85% in April last year, when cities nationwide went into lockdown in order to stamp out coronavirus outbreaks. The five-year LPR was also kept steady at 4.65%.

Shanghai's three-month interbank offered rate, a crucial lending benchmark, rose to more than 3% in late November compared with below 1.5% in May. The rate fell in December and January but has crept higher over recent weeks, and now stands at 2.85%.

Meanwhile, the PBoC's recent daily open market operations have not injected enough liquidity to make up for the medium-term notes that have been expiring. On Monday, that meant a net liquidity withdrawal of Rmb40bn ($6bn), helping to paint a picture of gradually shrinking monetary support.

CURRENCY NEWS: China's yuan eased against the dollar despite softer mid-point fixing by the central bank. The People's Bank of China (PBOC) set the midpoint CNY=PBOC at 6.4563 per dollar, 61 pips firmer than previously. In the spot market, onshore yuan CNY=CFXS opened at 6.4585 per dollar and was changing hands at 6.4625 at midday, 27 pips weaker than the previous late session close, in spite of a firmer midpoint fixing.

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