Shanghai Composite Sinks 3.89%, Markets Jittery

Andamento del mercato - 29/02/2016

Chinese stock markets fell towards lows recorded during the start of the year recently, with the Shanghai Composite Index sinking a significant -3.89%. The slide contrasts with the kickoff of the G20 summit in Shanghai, replete with Governor of the People’s Bank of China Zhou Xiaochuan reiterating his message of confidence that Beijing will not go through another devaluation of the Chinese Yuan. The banker expressed his belief, yet again, that the economy will achieve balance through development, restructuring and risk management.

As the G20 meeting ended, no actions in line with these promises were announced, and the Chinese currency pared its gains against the U.S. dollar that were recorded from the start of the year. Economists are concerned that central bank policymakers have lost confidence in their ability to impose stimulus, and would rather wait for intervention in the form of fresh fiscal stimulus from government. The decline in the Chinese financial markets created waves that shook European stocks after the event, opening lower while crude oil prices also declined from early morning gains.

Risks continue to unfold with expectations of rising unemployment as commodity prices continue to hover at record low levels, with both coal and steel companies opting towards cost and capacity reduction. Moreover, the four PBoC interest rate cuts over the past year are having a decidedly muted effect, blurring but not concealing economic gloom. As of now, investors expect the central bank to cut rates even lower during the remainder of 2016. A move expected after the results of last week, Monday’s trading session had the PBoC cut the required reserve ratio by 50 additional basis points from 17.50% to 17.00% after the markets closed. Chinese Premier Li Keqiang stated that the economy has the determination to counteract the complicated economic situation developing domestically and abroad. The governor of the central bank stressed that if further downward volatility appears, the bank and its policymakers have the capacity and the tools for more monetary easing.


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