China Blue-chip Stocks Hit 5-year Lows, Yuan Eases after Moody's Move

People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
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China Blue-chip Stocks Hit 5-year Lows, Yuan Eases after Moody's Move

People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang
People walk at a shopping compound in Beijing, China December 6, 2023. REUTERS/Tingshu Wang

China's blue-chip stocks slumped to an almost five-year trough on Wednesday while the yuan currency extended losses, as markets grappled with Moody's cut to China's credit outlook at a time of growing worries about the economy's stuttering recovery.
The ratings agency issued a downgrade warning on China's credit rating on Tuesday, saying costs to bail out local governments and state firms and control its property crisis would weigh on the world's second-largest economy.
China stocks opened down with the CSI300 Index touching its lowest level since Feb. 2019, before recouping earlier losses. It was up 0.2% by midday, while the Shanghai Composite Index was down 0.1%.
Chinese markets have had a torrid time this year as a shaky economic recovery and a deepening property crisis have added to geopolitical challenges, including protracted Sino-US tensions over tech and trade.
The CSI300 Index has tumbled 12.2% so far this year and is set to record one of the worst performer in the region.
The Hang Seng Index, meanwhile, rebounded roughly 0.7% in morning trade, with tech shares leading gains.
"The CSI300 index was hit the hardest in terms of valuation, as the index gets more allocations from foreign investors. Adding the impact of Moody's cut, the index may find a bottom and rebound soon," said Pang Xichun, research director at Nanjing RiskHunt Investment Management Co.
Foreign capital recorded a net inflow via the northbound trading link as of midday, after three consecutive sessions of outflows.
"Moody's decision to downgrade its outlook on China's debt is the latest link in a long string of recent disappointments for investors in Chinese equities," said Yasser El-Shimy, investment analyst at The Motley Fool.
China's economic recovery has shown signs of losing steam quickly after an initial burst in consumer and business activity at the start of the year, weighed down by an ailing housing market, local government debt risks and slow global growth.
FRAGILE YUAN
In the currency market, China's yuan slipped against the dollar on Wednesday even as major state-owned banks continued their efforts to stabilise the currency.
The central bank, the People's Bank of China (PBOC), extended its months-long trend of setting daily guidance fix at levels stronger than market projections, which traders and analysts have widely interpreted as an official attempt to keep the currency stable.
On Wednesday, the PBOC set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1140 per dollar prior to market opening, 13 pips weaker than the previous fix of 7.1127. But it was 336 pips firmer than Reuters estimate of 7.1476.
"The strong yuan fix continues to convey a message of support for the yuan as domestic demand remains fragile and China's property market continues to struggle to find a foothold," Maybank analysts said in a note.
The spot yuan rate opened at 7.1570 per dollar and was changing hands at 7.1578 at midday, 98 pips weaker than the previous late session close.
China's major state-owned banks stepped up US dollar selling forcefully after the Moody's statement on Tuesday, and they continued to sell the greenback on Wednesday morning, Reuters reported.
The yuan has had a volatile year, having weakened 6.14% to the dollar at one point before recouping some of the losses on growing bets that US interest rates have peaked.
The yuan strengthened 2.55% in November, its best month this year, but it is still down 3.6% year-to-date.
Other global ratings agencies, Fitch Ratings and S&P Global Ratings, made no changes to their respective China credit ratings.
Fitch affirmed China's A+ rating with a stable outlook in August, while S&P Global said on Wednesday it has retained China's A+ rating with a 'stable' outlook.
"We last affirmed our A+ long term ratings on China in June with stable outlook and there has been no changes to that yet," said S&P in an emailed response to queries from Reuters.



China’s October New Lending Tumbles More than Expected despite Policy Support

 A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)
A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)
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China’s October New Lending Tumbles More than Expected despite Policy Support

 A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)
A masked woman walks at a fashion boutique displaying posters to promote Singles' Day discounts at a shopping mall in Beijing, Monday, Nov. 11, 2024. (AP)

New bank lending in China tumbled more than expected to a three-month low in October, as a ramp-up of policy stimulus to buttress a wavering economy failed to boost credit demand.

Chinese banks extended 500 billion yuan ($69.51 billion) in new yuan loans in October, down sharply from September and falling short of analysts' expectations, according to data released by the People's Bank of China (PBOC).

Economists polled by Reuters had predicted a fall in new yuan loans to 700 billion yuan last month from 1.59 trillion yuan the previous month and against 738.4 billion yuan a year earlier.

"Corporate financing demand remains weak due to poor profitability," said Luo Yunfeng, an economist at Huaxin Securities. "Credit demand may not pick up soon despite recent central bank policy measures."

The PBOC does not provide monthly breakdowns but Reuters calculated the October figures based on the bank's Jan-October data released on Monday, compared with the Jan-September figure.

The PBOC said new yuan loans totaled 16.52 trillion yuan for the first ten months of the year.

Household loans, including mortgages, dropped to 160 billion yuan in October from 500 billion yuan in September, while corporate loans dipped to 130 billion yuan from 1.49 trillion yuan, according to Reuters calculations based on central bank data.

Chinese policymakers have been working to arrest further weakness in an economy stuttering in recent months from a prolonged property market downturn and swelling local government debt.

Among their goals is to tackle the side-effects from a mountain of debt left from previous stimulus dating back to the 2008-2009 global financial crisis.

China's central bank governor Pan Gongsheng said China will step up counter-cyclical adjustment and affirm a supportive monetary policy stance, a central bank statement showed on Monday, citing a report Pan delivered to the top legislative body last week.

In late September, the central bank unveiled an aggressive stimulus package including rate cuts, and Chinese leaders pledged "necessary fiscal spending" to bring the economy back on track to meet a growth target of about 5%.

MORE STEPS ON THE CARDS

China unveiled a 10 trillion yuan debt package on Friday to ease local government financing strains and stabilize flagging economic growth, as it faces fresh pressure from the re-election of Donald Trump as US president.

New measures planned will include sovereign bonds issuance to replenish the coffers of big state banks, and policies to support purchase of idle land and unsold flats from developers, Finance Minister Lan Foan said.

Analysts at OCBC Bank expect the central bank to deliver another cut in banks' reserve requirement ratio in November or December to support the planned bond issuance.

China watchers are skeptical the steps will produce a near-term boost in economic activity as most of the fresh funds will be used to reduce local government debt, but China's central bank said it will continue supportive monetary policy to create a favorable monetary and financial environment for economic growth.

The PBOC also said it will study and revise money supply statistics to better reflect the real situation of the country's money supply.

Trump's election win could also prompt a stronger fiscal package in expectations of more economic headwinds for China. Trump threatened tariffs in excess of 60% on US imports of Chinese goods, rattling China's industrial complex.

Broad M2 money supply grew 7.5% from a year earlier, central bank data showed, above analysts' forecast of 6.9% in the Reuters poll. M2 grew 6.8% in September from a year ago.

Outstanding yuan loans grew 8.0% in October from a year earlier. Analysts had expected 8.1% growth, the same pace as in September.

The outstanding total social financing (TSF), a broad measure of credit and liquidity in the economy, slowed to a record low of 7.8% in October, from 8.0% in September. Acceleration in government bond issuance could help boost growth in TSF.

TSF includes off-balance sheet forms of financing that exist outside the conventional bank lending system, such as initial public offerings, loans from trust companies, and bond sales.

In October, TSF fell to 1.4 trillion yuan from 3.76 trillion yuan in September. Analysts polled by Reuters had expected TSF of 1.55 trillion yuan.