China Stocks extend gain on stimulus plans

Headline indices of the Mainland China equity market inclined on Wednesday, 25 July 2018, as risk appetite buying for beaten-down equities continued after Chinese government pledges of a more vigorous fiscal policy. However, market gain was limited as some investors elected to book profit after a three-day rally propelled by signs of a shift toward stimulus. Around afternoon, the benchmark Shanghai Composite Index rose 0.1%, or 2.58 points, to 2,908.14, meanwhile the Shenzhen Composite Index, which tracks stocks on China's second exchange, added 0.2% or 2.59 points, to 1,628.42. The blue-chip CSI300 index rose 0.1%, or 0.27 points, to 3,581.98.

On Monday, Chinese state radio, citing the cabinet, said that Beijing will adopt a more vigorous fiscal policy to help tackle external uncertainties without resorting to strong policy stimulus. Measures will be taken to promote effective investment focusing on addressing inadequacies, gathering more momentum and improving people's livelihood, according to the State Council's executive meeting chaired by Premier Li Keqiang on Monday. Slowing economic growth has sparked a heated debate among government researchers on whether fiscal policy should play a bigger role in softening the impact of a trade war with the United States. The government will deliver a tax cut of 65 billion yuan (US$9.6 billion) by expanding a preferential policy for small technology firms to all firms, on top of an initial goal of cutting taxes and fees by 1.1 trillion yuan this year, the State Council said.

The fiscal policy will focus on cutting taxes for companies while the pace of local governments' special bond issuance will be quickened, the statement said. Efforts will be stepped up in issuing 1.35 trillion yuan of special bonds for local governments to see more tangible progress on ongoing infrastructure projects. China will keep liquidity ample and maintain appropriate total social financing under its prudent monetary policy, which will be neither too tight nor too loose, it added. The government will step up efforts to ensure delivery of the State financing guarantee fund, targeting 140 billion yuan of loans for about 150,000 small and micro firms each year. The meeting also decided to deepen investment reform to solicit more private investment in fields including transportation, telecommunications, oil, and gas.

In an unexpected move Monday, the central bank lent 502 billion yuan to financial institutions via its one-year medium-term lending facility, stepping up efforts to support lending.

The shift in focus toward easing also comes after the central bank in July released 700 billion yuan in liquidity by cutting some banks' reserve requirements, prompted by concerns over tighter cash conditions and a potential economic drag from the U.S. trade dispute. It was the third such cut this year.

CURRENCY NEWS: Chinese yuan depreciated against greenback on Wednesday after softer mid-point fixing by central bank. The central parity rate of the Chinese currency renminbi, or the yuan, weakened 149 basis points to 6.804 against the U.S. dollar Wednesday, according to the China Foreign Exchange Trade System.

OFFSHORE MARKET NEWS: The major U.S. stock indexes finished mostly higher Tuesday as investors welcomed strong corporate earnings reports from Google parent. The US government on Tuesday announced $12 billion in aid for farmers who have been the primary targets of retaliation by trading partners facing President Donald Trump's punishing tariffs. Alphabet and other companies. The S&P 500 index rose 13.42 points, or 0.5%, to 2,820.40. The Dow Jones Industrial Average gained 197.65 points, or 0.8%, to 25,241.94. The Nasdaq composite lost 1.11 points to 7,840.77.

The European markets ended solidly in positive territory on Tuesday, despite a survey that indicated economic growth across the 19-country eurozone moderated at the start of the third quarter. Germany's DAX rose 1.1% and the CAC 40 in France added 1%. The FTSE 100 index of leading British shares gained 0.7%.

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