The trigger for the fall is largely being
attributed to PBoC draining cash from the banking system on Thursday via
"back-door repos” to the tune of 100 bn yuan in 7, 14 & 28 days
contract. Bloomberg reports that PBOC likely
refrained from offering repos in open-market operations to avoid signalling a
tightening of policy. China’s lenders are awash with funds after the
central bank reduced interest rates three times since November and eased
reserve requirements to help an economy growing at the slowest pace since 2009 (update to the earlier post below)
Of note, SSEC fell 6.50% today after having risen almost 150% in a year. Couple of factors led to the fall:
- Central
Huijin holdings (state investment fund) which until recently was not
allowed to sell its stake in big banks has now been allowed and offloading
of big chunk lead to a massive sell off
- A
decision from index provider MSCI, due on June 9, on whether to include
domestic Chinese shares in its global indices has added to the feeling of
uncertainty. A green light from MSCI could force global funds to add tens
of billions of dollars into the Chinese market.
- Slew
of IPOs are slated for next week
- Steps
to drain liquidity by the PBoC
- Request
from the banking regulator on the extent ofmargin lending on their books. A
number of brokers have announced a tightening of margin requirements this
week.
Decision
to allow Huijin to sell its stake is a move in the right direction that
delivers a sense of cooling off of the equity markets to the investors and
paves the way for diversified ownership among state companies.
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