Daily Management Review

Global Stimulus Hopes Pull up China Share to End Higher


Global Stimulus Hopes Pull up China Share to End Higher
In a relatively muted response to hints of more policy stimulus in Europe and Japan that prompted a robust rally in battered oil prices and equities elsewhere, China's fragile shares ended higher on Friday.
The benchmark Shanghai Composite Index managed a rise of just 1.25 percent, following sharp losses on Thursday while Japan's Nikkei jumped nearly 6 percent and Brent crude was up more than 5 percent.
There was a 1 percent increase at close in the CSI300 index of the largest listed companies in Shanghai and Shenzhen.
With little volume behind the trade, the indexes veered between positive and negative territory during the day. For the first time in 2016, the Shanghai Composite did at least end the week marginally higher than it began.
The Chinese market has been fickle and have slumped about 17 percent so far this year where morning gains have often turned to losses by close of day as traders quickly take profits and investors appear increasingly reluctant to risk their money on China's markets.
Trading volumes in January have been about a third of typical levels last year highlighting the lack of faith in the markets.
Beijing would use regulations to prevent volatility in a market that was "not yet mature", Vice President Li Yuanchao sought to reassure investors on Thursday.
"An excessively fluctuating market is a market of speculation where only the few will gain the most benefit when most people suffer," Li, who is attending the World Economic Forum in Davos, said.
The regulators' attempts to curb volatility, notably a new circuit breaker mechanism that was ditched after three days of violent falls, have conspicuously failed.
As a raft of economic indicators have confirmed the country's declining growth, putting the world's second-largest economy at the top of global investors' worry list along with plunging crude oil prices, the stock markets and China's yuan currency have come under pressure.
With data showing a pick-up in lending to China's property market, and that urban unemployment was unchanged at 4.05 percent, these were some bits of good news on Friday. But most economists believe China's real jobless rate is higher.
As the People's Bank of China (PBOC) has steered a steady course for the currency daily midpoint fix in recent weeks, concerns about another near-term yuan devaluation are slowly fading away. The formula the central bank is using to determine its value has puzzled the currency markets who say spot yuan will remain under pressure as the economy continues to cool. Friday's fix was again barely changed at 6.5572 per dollar.
While offshore yuan weakened slightly to 6.6076, 0.4 percent adrift from the onshore rate, the spot yuan clung tightly to its previous close, as it has all week.
Concerns about China seeking to devalue the yuan to gain a competitive advantage for its exports were countered by Fang Xinghai, the vice chair of the Chinese Securities Regulatory Commission.
"A depreciation is not in the interests of China's rebalancing; a too deep currency fall would not be good for consumption," Xinghai said.
China will finally devalue the currency around March or April and speculators have taken to using the yuan's cheaper offshore forwards market to wager.
They were expecting policy measures to keep the yuan's fall in check, forecasting a mid-year rate of 6.72 to the dollar and a pick-up to 6.60 by year-end, said economists at ING.

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