An investor walks past an electronic screen showing stock information at a brokerage house in Nanjing

China shares slip as oil slides, outweighing stimulus hopes

China’s volatile stock markets fell more than 1 percent on Wednesday, though mounting chatter about imminent policy stimulus provided some support against the backdrop of a fresh slide in oil prices, which hit stock markets across the globe.

Asian and European stocks were down sharply as U.S. crude sank beneath $28 a barrel for the first time since 2003, hammering energy stocks and boosting safe havens. [MKTS/GLOB]

The benchmark Shanghai Composite Index closed down a fraction over 1 percent after a 3.25 percent bounce on Tuesday [.SS], while the CSI300 index of the largest listed companies in Shanghai and Shenzhen lost 1.5 percent, having risen 2.95 percent the previous session.

Tuesday’s jump was fueled by expectations that the People’s Bank of China (PBOC) would soon act to loosen monetary policy further after the latest data confirmed economic growth hit a 25-year low last year.

The indexes are down 15-16 percent so far in 2016 after a series of sharp sell-offs.

On Tuesday, the statistics bureau also released weaker-than-expected readings on industrial output and retail sales for December, while the Commerce Ministry said on Wednesday that foreign direct investment fell in the final month of the year, and China’s external trade faced relatively severe pressure in 2016.

A new survey by the American Chamber of Commerce in China showed that the slowdown is hitting profits at more foreign companies operating on the mainland, and the vast majority believed China’s growth would fall well short of the central bank’s forecasts of 6.8 percent this year.


Economic concerns have also pressured China’s yuan currency, which is down about 5 percent since August, encouraging a destabilizing outflow of capital.

The PBOC has acted aggressively to deter speculators from shorting the yuan. But two surprise devaluation moves from the central bank in six months and a cooling economy have only reinforced market expectations of further yuan weakness.

On Wednesday, the PBOC set a firmer midpoint for the currency at 6.5578 per dollar, from which the spot rate can vary by 2 percent.

The spot yuan was barely changed from its previous close, though offshore the currency was a little weaker, trading nearly 0.4 percent below the onshore rate.

As authorities clamped down on speculative selling of the yuan offshore, the non-deliverable forwards (NDF) market for the yuan has become an easier and cheaper alternative for punters.

NDF pricing suggests that toward the end of April, the yuan will have declined 1.4 percent.

“Essentially, the market is betting on the yuan fixing flatlining for at least two months and then a big depreciation, just like in August last year,” said a trader in Singapore.

The impact of China’s sluggish economy and weak yuan has also hit Hong Kong, where many international investors place their bets on China.

The Hang Seng index closed down 3.8 percent on Wednesday, while the Hong Kong China Enterprises Index tumbled 4.3 percent. The Hong Kong dollar fell to an eight-year low against the greenback, ratcheting up concern that its central bank would have to intervene to maintain the dollar peg and tighten monetary policy to an already slowing economy.

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