China Market falls on sign of slowing policy easing

Headline indices of the Mainland China equity market tumbled from 13-month peak on Monday, 22 April 2019, as profit booking selloff triggered amid fears that Beijing will slow the pace of policy easing after some signs of stabilisation in the world's second-largest economy. Meanwhile, selloff was fueled amid a lack of fresh market-moving events as a majority of foreign markets were closed for the Good Friday holiday. The US, European and a majority of Asian markets were closed on Friday. At closing bell, the benchmark Shanghai Composite Index declined 1.7%, or 55.75 points, to 3,215.04 The Shenzhen Composite Index, which tracks stocks on China's second exchange, fell 1.5%, or 26.91 points, to 1,751.91. The blue-chip CSI300 index shed 2.3%, or 95 points, to 4,025.61.

China will maintain policy support for the economy, which still faces "downward pressure" and difficulties after better-than-expected first quarter growth, a top decision-making body of the Communist Party said on Friday. It added that China will push forward structural deleveraging and prevent speculation in the property market, suggesting attention may be turning back to debt risks that any further substantial stimulus measures may create. The statement from the politburo came two days after China reported steady 6.4% annual growth in January-March, defying expectations for a further slowdown, as industrial production jumped sharply and consumer demand showed signs of improvement.

 

Tommy Xie, head of Greater China research at OCBC in Singapore, said the politburo's remarks suggested market views of further marginal monetary easing, such as via a cut in banks' reserve requirement ratio (RRR), was limited.

The trend of marginal tightening in China's monetary policy is quite clear, as the politburo meeting mentioned "structural deleveraging" again and as the central bank drained liquidity via open market operations recently.

Asian stock markets were mostly lower in Monday afternoon trade in the absence of fresh cues from Wall Street and European markets, which were closed for the Good Friday holiday. The markets in Australia, New Zealand and Hong Kong remained closed for the Easter Monday holiday. The broad MSCI Asia ex-Japan index declined 0.31% to 542.00.

CURRENCY NEWS: China's yuan eased against the U.S. dollar on Monday, despite firm mid-point fixing by central bank. Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.7035 per, firmer by 8 bps than the previous fix of 6.7043. In the spot market, onshore yuan opened at 6.7060 per dollar and fell to a low of 6.7150 at one point, the weakest since April 12. As of midday, the onshore spot yuan was changing hands at 6.7135, 86 bps weaker than the previous late session close and 0.15% softer than the midpoint.

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