Stocks Plunge in China on Tighter Credit

123jump.com Staff
10 Jun, 2008
New York City

Stocks in Hong Kong and Shanghai plunged after the central bank increased cash deposit requirements for banks. The surprise decision caught investors on the wrong footing. Banks, energy and mobile telecom stocks fell. In Shanghai trading CSI 300 Index plunged 8.11% or 282.94 at 3,206.56. In Hong Kong trading Hang Seng declined 4.21% or 1,026.66 at 23,375.52. Yuan traded at a record high against dollar.

[R]6:00AM New York, 6:00PM Hong Kong - Hang Seng falls on Beijing’s austerity measures. Yuan rises to record 6.92 against the dollar.[/R]

Hong Kong stock averages fell sharply after the People’s Bank of China increased its reserve requirement ratio by 100 basis points.

Market sentiment

In Hong Kong trading Hang Seng declined 4.21% or 1,026.66 at 23,375.52, and the China Enterprises Index of Hong Kong listed mainland shares, or H shares, plummeted 5.35% or 723.34 at 12,789.87. In Shanghai trading CSI 300 Index plunged 8.11% or 282.94 at 3,206.56.

Daily turnover on main-board was HK$82.16 billion compared with HK$58.62 billion on Friday last week.

China cash reserves for banks

China Daily online reported today that Saturday’s decision by the People’s Bank of China to raise the reserve requirement ratio by 100 basis points will dampen investor sentiment.

The central bank''s latest move to raise the reserve requirement ratio is expected to dampen stock investors'' sentiment as it indicates a possible consistent tightening monetary policy in the coming months. The sharp rise in inflation is partly fueled by a rising credit to consumers and banks. China hopes that a tighter lending condition will curtail inflationary investment and lower rate of inflation.

Consumer price index is expected to be released on Thursday.

The yuan rises to 6.92 to a dollar

Xinhua News Agency reported today that the China Foreign Exchange Trading System said the yuan rose the most since the country reformed its currency policy in July 2005 to a record 6.92 against the dollar.

Today the central parity rate of the yuan or Renminbi was set at 6.9199 yuan against one U.S. dollar, and the reference rate was up 39 basis points from last Friday''s 6.9238.

In addition, today the RMB gained 102 basis points against the European currency to 10.7812 yuan for one euro and 520 basis points against the Japan''s currency to 6.4799 yuan for 100 Japanese yen.

Gainers & Losers

Financial stocks declined on a surprise move from the People’s Bank of Chin to increase reserve requirement ratio at commercial banks. China Construction Bank dropped 4.9% and China Life fell 5%.

Sinopec Corp edged down 5.9% to HK$7.76 on news reports China has indicated that it was not likely to remove price controls on petroleum products. Sinopec Shanghai Petrochemical tumbled 9.9%.

PetroChina fell 5.5% after oil prices jumped to $135 per barrel.

HSBC plummeted 2.7% after securities firm Lehman Brothers reported that it expected to post a $2.8 billion second-quarter loss and raised $6 billion at a discount of 13% to its previous day closing price.

Telecommunication stocks also fell. China Mobile dropped 3.9%, China Netcom dropped 9.6% and China Unicom slipped 8.3%.

However, Hutchison Telecommunications increased 1.3% to HK$11.10 after the company said it would launch the 3G version of Apple''s best-selling iPhone in Hong Kong on July 11.

World markets review

In Tokyo Nikkei 225 Index closed lower 160.21 or 1.13% to 14,021.17, in Hong Kong Hang Seng index decreased 1,026.66 or 4.21% closed to 23,375.52. In Australia ASX 200 index lower 154.60 or 2.76% to close 5,437.50. In Malaysia KL Composite index decreased 0.02 or 0.00% closed to 1,230.96.

In South Korea Kospi Index decreased 34.58 or 1.91% to close at 1,774.38, in Thailand SET index closed lower 13.64 or 1.69% to 791.94 and Indonesia JSE Index edged decreased 36.26 or 1.50% to 2,373.82. Sensex index in India decreased 176.85 or 1.17% to 14,889.25.