Chinese stock markets took a wild ride yesterday, tumbling and soaring in a session that made little sense other than to highlight that investors have almost no faith in a month-long government effort to stabilise them.
The Shanghai and Shenzhen markets fell three per cent in morning trade, taking their losses to more than eight per cent since investors stampeded without warning on Tuesday.
But state-backed buyers later rushed in, enabling stocks to finish the day more than one per cent higher.
It is a pattern that has been repeated several times since Beijing’s “national team”, a coalition of state-backed financial institutions and regulators, went into action early last month with instructions to halt a crash in share prices.
Investors say China’s stock markets – which were never for the faint of heart – have become dysfunctional since the government’s massive and unprecedented rescue effort.
Prices moved sharply on speculation about the national team’s activities as investors focused on making quick trading profits by pre-empting its next move.
Long-term investors are staying well to the sidelines, moving their cash into bonds and the money market, as roller-coaster markets and a gloomy stream of economic news heighten their anxiety over the world’s second-largest economy.
“We advise strapping in for a bumpy ride,” said Tim Condon, head of Asia research for ING Bank in Singapore.
The Commerce Ministry added to that anxiety yesterday, saying exports could continue falling in coming months, after an 8.3 per cent plunge in July, their biggest drop in four months. The economy is already under threat of deflation and policymakers are struggling to revive bricks-and-mortar investment.
Beijing’s official growth target is seven per cent for this year, but some economists estimate current levels are closer to half that.
Combined exports and imports for the first seven months of 2015 fell 7.2 per cent from the same period last year, compared with Beijing’s full-year target of six per cent growth.
“The possibility of exports to see year-on-year decline in some months could not be ruled out. But we will still see export growth for the whole year,” Commerce Ministry spokesman Shen Danyang told a regular monthly briefing.
“For the whole year, the foreign trade will face more severe situation than we expected.”
Only last month, the ministry predicted exports would improve in the second half of this year from the first half.
We advise strapping in for a bumpy ride
The Shanghai market closed up 1.2 per cent and Shenzhen jumped 2.2 per cent. The benchmark CSI300 index, comprising blue-chip stocks from both markets, rose 1.6 per cent.
The rebound followed news the central bank would offer more medium-term funds to banks, in addition to a 120 billion yuan ($19 billion) injection of funds into money markets on Tuesday.
Sources familiar with the medium-term funding plan said this would help offset the drain on liquidity caused by China’s unexpected devaluation of the yuan last week.
The prospect of further weakening has prompted investors to swap yuan into US dollars.
Capital outflows from China are expected to increase as investors grow more pessimistic over the outlook for the currency and the economy and calls are growing for the People’s Bank of China (PBOC) to ease policy more swiftly and aggressively.
Highlighting growing anxiety, money-market interest rates ticked higher on Wednesday, despite the fresh fund injections from the central bank.
The weighted average benchmark seven-day repurchase agreement rate rose four basis points to 2.53 per cent.
The PBOC devalued the currency on August 11, within a few days of the poor July export data and other official figures showing factory-gate prices continued their three-year slide in July, touching a six-year low.
A week later, the central bank is still struggling to control the fallout. Though it insists the yuan has no reason to fall further, most economists believe there is political pressure to let it slowly slide, which will put more competitive pressure on China’s export-reliant Asian neighbours.
The yuan has fallen three per cent against the dollar since the eve of the devaluation but that marks only a partial reversal of its gains over the past 12 months, especially against currencies of major trading partners Japan and the eurozone.
Bank of America Merrill Lynch said yesterday the yuan could be allowed to depreciate to 6.5 to the dollar by the end of this year and 6.9 by end 2016, from around 6.40 now.
The devaluation last week triggered falls in other Asian currencies such as those of Australia, New Zealand, Indonesia, Singapore and Taiwan, fuelling fears of a currency war.
Yesterday, Vietnam devalued the dong for the third time this year as authorities sought to support a languid export sector facing fresh challenges from the Chinese devaluation.