Possible China tightening weighs on stock markets

MARKETS ON EDGE:There is a growing expectation that Beijing will lift interest rates soon after it reported strong economic expansion of 8.7 percent last year


Wed, Jan 27, 2010 - Page 12

Lingering concerns that Beijing will move to tighten liquidity fed into regional stock markets yesterday, which fell as investors overlooked a positive result on Wall Street.

Markets have been on edge since China announced last week that its economy expanded at a better-than-expected pace last year, while inflation was soaring and bank lending was at a record high.

The region has also been on a downward slope since US President Barack Obama on Thursday launched a series of initiatives to restrict what he called the “excessive” bank risk-taking that led to the global downturn.

China’s strong figures have led to speculation that authorities will move to rein in the red hot economy by staunching lending or raising interest rates.

Shanghai closed down 2.42 percent, or 75.02 points, 3,019.39, amid reports that Chinese authorities had ordered several banks to stop issuing new loans this month as fears grow that the extra money is fuelling inflation.

“More investors are moving to the sidelines, as they remain cautious of more policy headwinds,” Zhang Qi (張崎) of Haitong Securities (海通證券) told Dow Jones Newswires.

The concerns spilled over into Hong Kong, which saw its fifth straight loss to close down 2.38 percent, or 489.22 points, to 20,109.33.

There is a growing expectation that China will lift interest rates soon after reporting economic expansion of 8.7 percent last year and 10.7 percent in the fourth quarter of the year.

Data also showed inflation at a 13-month high.

Beijing is also keen to put the brakes on runaway lending last year that has led to fears of asset bubbles and possible bad debt.

To calm fears over tightening, the People’s Bank of China yesterday kept the yield on its benchmark one-year bills unchanged, after having raised it twice in the previous two weeks.

However, the yen shot up in Asian trade on worries that Chinese moves to curb lending could derail a still-fragile global economic recovery.

The dollar dropped to ¥89.72 in Tokyo afternoon trade from 90.22 in New York late on Monday. The euro dropped to US$1.4081 from 1.4149 and to ¥126.36 from ¥127.69.

The Nikkei dropped 1.78 percent, or 187.41 points, to 10,325.28.

Seoul dropped 1.97 percent, or 32.86 points, to 1,637.34 at a seven-week low.

Aiming to ease investors’ minds, Minister of Finance Lee Sush-der (李述德) in Taipei yesterday said the investment team in charge of the country’s National Stabilization Fund (NSF) had yet to dump its local share holdings.

The Taiwan Stock Exchange index plunged 274.18 points, or 3.48 percent, to close at 7598.81 yesterday — its lowest level since Nov. 30.

“We [the team] have not disposed of the shares held by the NSF,” Lee told reporters before attending a luncheon organized by the European Chamber of Commerce in Taipei.

“The fund was established to help stabilize the equities market and we will do what we are supposed to do,” he said.