Mainland share prices drop for 5th day
The latest interest rate cuts announced by China's central bank brought mixed reactions from global stock markets Wednesday, as share prices on Chinese stock markets fell for a fifth consecutive day.
In Asia, Hong Kong's Hang Seng Index closed down 1.52 percent, or 324.57 points, to 21,080.39 points, while Japan's Nikkei index surged 3.20 percent and the Korea Composite Stock Price Index likewise rose 2.57 percent. India's BSE Sensex lost 1.22 percent and Indonesia's Jakarta Composite rose 0.22 percent.
In Australia, the benchmark ASX200 index gained 0.69 percent.
In Europe, most indices closed lower. As of press time, stock indices in the three major regional markets, London's FTSE 100, Germany's DAX and the Paris CAC, all shed less than one percent.
According to Fu Shaoqi, chief investment consultant at Shanghai Securities, global stock markets share the same weakness as they were all propped up by greater liquidity, and it is time for them to return to the fundamentals.
After a roller-coaster ride in trading Wednesday, the benchmark Shanghai Composite Index dropped 1.27 percent, or 37.68 points, to close at 2,927.29 points, while the Shenzhen Component Index fell 2.92 percent to 9,899.72 points, breaching the psychologically-important 10,000-point mark.
ChiNext, the country's NASDAQ-style board for high-tech companies and start-ups, slumped 5.06 percent to 1,890.04 points on Wednesday.
The Shanghai index has lost 26.70 percent over the past seven trading days, with nearly 700 stocks traded in the two bourses plunging by the 10 percent daily limit on Wednesday.
The continuing slide in the A-shares markets highlighted the extremely weak market sentiment despite the People's Bank of China's (PBC) latest monetary easing policy.
Following the end of trading on Tuesday, the PBC cut key deposit and lending interest rates by 0.25 percent and reduced the banks' reserve requirements (RRR) by 0.5 percent, in an effort to support the country's real economy.
"Since the central bank adjusted its mechanism for the yuan's daily reference rate against the US dollar on August 11, volatility in the equity markets and expectations of further currency devaluation have accelerated capital outflows, so an RRR cut is already within market expectations," Wang Tao, chief China economist at UBS, wrote in a research note sent to the Global Times.
Shao Yu, chief economist at Orient Securities, echoed Wang's views, saying that investors were not impressed by the latest stimulus as they had factored it in.
"Sell-offs still dominate the markets," Shao told the Global Times on Wednesday. "And valuation is another problem. The markets are undergoing the correction process."
Stocks on ChiNext generally have price-to-earnings (PE) ratios at 80 to 90 times higher, while PE ratios of stocks on the small- and medium-enterprise board stand at around 50 to 60 times higher.
According to Xu Gao, chief economist at Everbright Securities, the PBC's move is meant to stabilize liquidity levels in the domestic financial markets, which is expected to help the real economy gradually recover.
"The PBC may have acted to stabilize the capital markets, but it should be noted that its main purpose was not to rescue the stock markets, and will have a limited impact on A-shares," Xu wrote in a research note sent to the Global Times on Wednesday. "So we should not see the RRR cut as the beginning of another round of market support measures, and it is unlikely to change market trends."
"Also, the previous rescue measures showed that the impact of the monetary easing policy had little effect on stock markets. The most effective measure would be for institutions like the China Securities Finance Corporation to inject funds into the markets," Xu added.
"But the risks of the stock markets' plunge on China's financial stability have been greatly reduced after the previous slump, so the necessity of government intervention in the markets has also been reduced, and more market stimulus measures are unlikely to happen."
