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Chinese markets hit new highs despite rate hikes

Chinese investors trade in front of a stock price board at a private securities firm in Shanghai yesterday. PHOTO: AFP

Chinese share prices jumped 1.04 percent for another record finish yesterday as investors shrugged off the central bank's latest efforts to cool the economy and stocks, and instead used early losses as a bargain-hunting opportunity, dealers said.

They said prices opened down more than 3.0 percent but the key index soon swung back into positive territory as investors discounted Friday's moves as yet more of the same measures which have repeatedly failed since early last year.

The downturn was sharp but investors responded very quickly to the lower prices and within an hour, most of the lost ground had been recovered.

The People's Bank of China said on Friday it would raise benchmark one-year lending rates by 0.18 percentage points to 6.57 percent and the deposit rate by 0.27 percentage points to 3.06 percent.

The bigger increase in deposit rates signalled the intent of regulators to cool off the nation's sizzling stock markets, to ensure "reasonable growth" in investments and keep prices stable, it said.

In addition, to slow the pace of lending, the central bank said it would hike commercial bank reserve requirements -- the money they must set aside to cover emergencies -- by 0.5 percentage points to 11.5 percent.

The central bank has been steadily tightening up on liquidity since early last year but each move has had very little lasting impact.

Yesterday's market reaction was even more startling in that the central bank must have hoped that a combined rate and requirement hike would call investors to order.
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