Another turbulent day for China markets, even after the People’s Bank of China appeared to have attempted to halt the sell-off by keeping the daily fix for the currency stable for a second straight session.
The Shanghai and Shenzhen Composites each ended the day at session lows, falling 5.3 per cent and 6.6 per cent, respectively. In the six sessions of 2016, the indices have fallen by 14.8 per cent and one-fifth, respectively.
Markets fell after digesting weekend comments from a senior Chinese official that the country will face great difficulty in achieving economic growth above 6.5 per cent over the 2016-2020 period.
President Xi Jinping earlier this year set 6.5 per cent as the minimum level necessary to achieve the target of doubling GDP from 2010 to 2020.
Moreover, over the weekend China unveiled inflation figures that underscore its economic woes. Consumer inflation rose by a muted 1.6 per cent year on year in December, which is about half of Beijing’s target. Producer prices fell 5.9 per cent, a 46th month of deflation, suggesting the economic slowdown is falling on the manufacturing sector.
While the PBoC modestly strengthened the fix for the renminbi today, which may have been an attempt to help inject some confidence into the markets, there was plenty of negative attention in the headlines today when the renminbi (CNH)-based overnight Hong Kong interbank offer rate, or CNH-Hibor, jumped 939 basis points – the biggest daily move ever, according to Bloomberg – to 13.4 per cent.
While the rate spike should have has little practical impact, it could reinforce the narrative – whether it’s accurate or not – that Beijing is losing its grip.
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