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Shanghai index tumbles again amid liquidity jitters
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Shanghai stocks declined for the fourth straight day today, sending the key index to the biggest weekly fall in four months as investors worried about tight liquidity.
The benchmark Shanghai Composite Index dropped 1.45 percent, or 31.37 points, to 2,132.96. Daily turnover was 99.7 billion yuan (US$16.3 billion). The index fell 2.77 percent for the week, the biggest weekly loss since June 28.
“Worry about policy tightening grew as the central bank refrained from injecting liquidity,” Tu Jun, an analyst with Shanghai Securities, said in a report.
Data from the National Interbank Funding Center showed the seven-day repurchase rate, a gauge of funding availability, rose 140 basis points this week to 4.89 percent today, the biggest weekly surge since June when China suffered its worst liquidity crisis in over a decade.
The People’s Bank of China, the central bank, suspended twice-weekly auctions of reverse repo agreements for a third session yesterday, draining 58 billion yuan from the banking system, after withdrawing 44.5 billion yuan last week.
“There is also concern about the sustainability of economic recovery as the data showed the recent rebound was mainly driven by infrastructure investment as a result of policy stimulus,” Tu said.
In its latest report, Fitch Ratings lowered its China’s economic growth forecast for 2014 from 7.5 percent to 7 percent, saying the “economic rebalancing in China and tighter global monetary conditions have exacerbated domestic structural vulnerabilities and difficult policy trade-offs.”
Shares related to Shanghai’s free trade zone plunged today. Shanghai Waigaoqiao Free Trade Zone Development Co, which operates two of the four bonded areas in the zone, tumbled by the daily limit of 10 percent to 41.58 yuan, after surging more than 200 percent since August. BesTV New Media Co, which has a joint venture with Microsoft in the zone, plunged 4.5 percent to 37.92 yuan.
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