China Stocks Stabilize With Yuan After Rout as Money Rates DropWeiyi Lim
Chinese stocks halted a four-day slide that sent valuations close to record lows, while the yuan was little changed after tumbling the most since 2010 yesterday.
The Shanghai Composite Index rose 0.4 percent to 2,041.25 at the close, with China Petroleum & Chemical Corp. and Jiangxi Copper Co. spearheading a rally for energy and metal producers. Benchmark money-market rates fell to a seven-month low as central bank efforts to weaken the yuan boosted the supply of cash in the financial system. The Chinese currency advanced 0.04 percent to 6.1239 per dollar.
The Shanghai Composite led declines among global equity indexes during the past four days, dragging down its price-to-earnings ratio to within 3 percent of an all-time low, on concern a weaker property market and falling currency will curb corporate profits. Volatility in the yuan is increasing amid speculation policy makers in the world’s second-largest economy are trying to discourage one-way bets on appreciation.
“The market is just very jittery,” Kelvin Tay, chief investment officer at an Asian wealth management unit of UBS AG, said by phone in Singapore. Concerns that a weaker yuan and tighter real-estate financing will hurt the economy are “overdone,” he said.
The Shanghai Composite dropped to 10.2 times reported earnings yesterday, near its low of 10 times reached last month, according to data compiled by Bloomberg. The MSCI All-Country World Index has a multiple of 16.6.
China Petroleum & Chemical, the state-owned refiner that said last week it was seeking private investors, jumped 3.7 percent. Shandong Gold Mining Co. surged 10 percent after Credit Agricole SA’s private-banking unit said bullion demand in China will be sustained. Jiangxi Copper, the biggest Chinese producer of the metal, rose 2.3 percent.
China Citic Bank Corp. climbed 3 percent to lead gains for lenders. The People’s Bank of China said today it will remove a cap on interest rates for foreign-currency deposits by companies in Shanghai’s free-trade zone from March 1.
Lifting the restrictions adds to China’s push to give markets a “decisive” role for allocating resources in the economy before the start of annual legistative meetings.
The seven-day repurchase rate, a gauge of funding availability, dropped 12 basis points to 3.09 percent, according to a weighted average compiled by the National Interbank Funding Center. It reached 3 percent, the lowest since July 18.
The yuan traded near the weakest level in seven months, after allowing it to steadily rise in each of the past four years. China’s central bank let it tumble about 1 percent over the past week, the most since at least 2007. Volatility in the currency has jumped the most this month among 31 major currencies tracked by Bloomberg.
The CSI 300 Index rose 0.3 percent after tumbling 6.5 percent in the previous four days. The Hang Seng China Enterprises Index added 1 percent, led by oil and auto stocks.
A measure of property stocks in the Shanghai index fell 0.3 percent, sliding for a fifth day to the lowest level since June. Industrial Bank Co. said this week it will delay loans for property projects until the end of March, fueling speculation that a weaker housing market will erode demand for everything from electric appliances to cars.
“We have fallen a lot so the negative news has been priced in,” said Zhang Gang, a strategist at Central China Securities in Shanghai. “Looking forward we need to focus on the policy meeting in March as the leaders may give some direction on reforms,” he said, referring to the annual meeting of the National People’s Congress that begins March 5.
The four-day slide for China’s stock market isn’t enough to convince investors from Prudential Financial Inc. to RidgeWorth Capital Management that now is the time to buy.
“We’ve said to be extremely careful, in taking advantage of weaker valuations, because valuations can become weaker,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial, which oversees more than $1 trillion of assets, said yesterday in a telephone interview. “We also want to hear what the government’s plans are in terms of any targeted stimulus, and we’re also watching the currency.’
China’s credit-market gauges are triggering alarm bells, as banks grow cautious in lending to each other while investors prefer the safest government bonds.
The spread between the two-year sovereign yield and the similar-maturity interest-rate swap, a gauge of financial stress, reached 121 basis points on Feb. 19, the widest in Bloomberg data going back to 2007. Two days later, the cost to lock in the three-month Shanghai interbank offered rate for one year reached an eight-month high of 94 basis points over similar contracts based on repurchase agreements, which are considered safer because they involve government securities as collateral.
‘‘What I do see are increasing parallels between China and the U.S. in the run-up to the global financial crisis,” said Patrick Perret-Green, a London-based strategist at Australia & Banking Group Ltd.