By BLOOMBERG
China’s benchmark stock index fell below the 3,000 level in volatile trading as concern grew about the government’s ability to revive the economy and stabilize the yuan.
The Shanghai Composite Index decreased 1% to 2,986.18 at 10:53 am local time, after gaining as much as 1%. Energy and material companies led declines. Investors have misunderstood the People’s Bank of China’s (PBOC) intentions in its recent moves on the reference rate, according to Ma Jun, chief economist at the central bank’s research bureau. The offshore yuan rose for a fourth day after the monetary authority set the reference rate little changed.
While the government helped boost stocks at least twice last week, according to people familiar with the matter, equities extended declines into the close on Monday. Even if state funds come in to defend the 3,000 level, it may not ultimately work, according to Michael Every, head of financial markets research at Rabobank Group in Hong Kong.
“Everyone rational wants to sell, while everyone official has been told to buy,” said Every. “By throwing good money after bad, it just delays the inevitable.”
The Shanghai Composite’s relative strength index fell to 27 on Monday, the lowest level since August. The stocks gauge has slumped 15% this year, the world’s worst-performing global index, amid speculation policy makers will allow the yuan to weaken and the economic slowdown is deepening.
Chinese officials have started to push back against views the nation’s currency is on a one-way weakening path. Betting against the yuan will fail and calls for a large depreciation are “ridiculous” as policy makers are determined to ensure the currency’s stability, Han Jun, the deputy director of China’s office of the central leading group for financial and economic affairs, said at a briefing in New York on Monday. The fixings are based on the previous day’s closing price and changes to the basket of currencies against which the yuan is valued, the PBOC’s Ma said.
The comments suggest policy makers are moving to damp expectations of a continued rapid deprecation in the yuan after the currency slumped to a five-year low against the dollar amid rampant capital outflows.
Even as Monday’s inflation reading suggests there’s room to act, government signals give reason to pause: Policy makers wouldn’t seek strong stimulus or flood the economy with too much investment to boost demand, Beijing News cited Premier Li Keqiang as saying.
Investors will return to stocks once they realize the government is consistent on its message, Lu Wenjie, equity strategist at UBS Group Inc, said in an interview on Monday. The downturn won’t last very long and investors shouldn’t sell at current levels given the government’s arsenal of policy tools, he said.
— By Kyoungwha Kim
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