Headline indices of the Asia Pacific market slumped to multi-month low on Monday, June 24, 2013, as risk aversion selloff amid fret about the prospect of reduced US monetary stimulus and worries over Chinese economic growth after a recent spike in Shanghai interbank interest rates.
Risk aversion selloff triggered across the regional bourses, dragged by the 5% decline in Shanghai stock market after the Chinese government showed little willingness to address a liquidity squeeze in the domestic financial system. Markets fear the move could hurt Chinese economic growth
Investors reacted negatively to the People's Bank of China (PBOC) statement liquidity in the country was still reasonable and that the era of cheap cash was over. The PBOC told there's a reasonable amount of liquidity in the financial system and urged banks to control risks from credit expansion, signaling no relief for a cash squeeze that risk exacerbating an economic slowdown.
The Chinese government's most explicit comments on this month's cash crunch added to signs that Premier Li Keqiang is committed to stamping out speculation funded by cheap money. Slowing growth, a crackdown on illegal capital inflows and efforts to rein in shadow banking has contributed to increased borrowing costs.
Moody's Investors Service said that they interpret the central bank's action as having been the result of a conscious decision to curb credit growth. Moody's added that a prolonged credit crunch could threaten Chinese companies, "especially those in the private sector with weak credit quality, because it heightens the risk that banks will scale back lending to those companies." Moody's says that China's central government finances remain strong, but that rapid credit growth and liabilities at the local level pose a threat to growth.
China's interbank lending rates surged to record high on last Thursday (June 20), enforcing a kind of credit crunch. This is because PBOC had temporarily turned off the flow of cheap money in an attempt to impose more discipline on its banks and reduce their reliance on credit. There were fears that the money markets could freeze up completely and put smaller lenders out of business as a result of the central bank's drastic move.
Inter-bank lending rates were, however, eased on Monday as PBOC made it clear big commercial banks should do a better job of managing their cash reserves and keep lending to smaller players. The benchmark weighted-average seven-day bond repurchase rate was at 8% today after surging to a record high of 13.50% on Thursday (June 20), while the overnight repo rate was at 6.3% after rising to 14.005% on last Thursday.
In the Asia Pacific region, Japan's shares fell sharply in late afternoon trade, dragging the benchmark Nikkei Stock Average 1.26% lower to finish at 13062.78, as investors preferred to book prior day gains amidst concerns over the slowing Chinese economy and the impact of a potential scaling back of the US monetary stimulus program. Japan's market commenced Monday's trading with firm footing today, getting a boost from further weakness in the yen and the ruling party's victory in Tokyo metropolitan elections. But the benchmark Nikkei225 index failed to hold momentum, wiping out all early gains and swung between gains and losses most of the occasion. The benchmark index extended losses late hour as huge selling pressure on tracking fall in index futures and weakness in other regional bourses.
Australia's stocks continued last week's downward move, taking the benchmark indices to its 2013 lows, as investors fretted about the prospect of reduced US monetary stimulus and worries over China's banking sector. In addition, a number of companies went ex-dividend in Sydney, exacerbating the local losses. The broader All Ordinaries finished 1.6% down at 4648.30. The index has lost 1.1% last week.
New Zealand's shares were mixed, leaving the NZX 50 Index little changed, as Fisher & Paykel Healthcare continued to benefit from a weaker kiwi dollar and AMP issued a profit warning. The NZX 50 rose 0.975 points, or 0.02, to 4364.045. Within the index, 25 stocks rose, 23 fell and two were unchanged. Turnover was NZ$93.9 million. F&P Healthcare, which gets more than 50 of sales in US dollars, raised 2.4 to NZ$3.49 as the New Zealand dollar traded near its lowest levels in a year.
China's stocks fell to the lowest levels since December, led by financial and consumer shares as Goldman Sachs Group cut its forecast for the nation's economic growth amid concern over elevated money-market rates. Both Goldman Sachs and China International Capital reduced their 2013 economic growth forecasts for China to 7.4. The Shanghai Composite Index tumbled 5.3 to end at 1,963.24, the lowest point in nearly seven months, while the Shenzhen Component Index pummeled 6.73 to 7,588.52. The CSI 300 Index entered bear market territory after declining 4 to 2,221.5, taking its slump from its February 6 peak to 20.4%.
The Hong Kong's stock market declined in relatively quiet trade amidst lingering worries over Chinese economic growth amid a recent spike in Shanghai interbank interest rates, with financial shares led broader losses. The Hang Seng Index lost 2.22% to finish at 19813.98. The benchmark index has fallen for the five consecutive days, losing a combined 1,413 points or 6.7%. The gauge has lost 3.4% last week, a sixth week of declines and the longest losing streak since October 2008.
Singapore's Straits Times Index fell 1.6 to a more than six-month low, led by a 3.1 fall in palm oil firm Wilmar International Ltd which has a large exposure to China via its oilseeds crushing and consumer pack businesses.
Malaysia's shares dropped 1 to their lowest since May 3, with foreign outflows at $117.94 million on Monday. Jakarta's broader stock index also fell 1.9 to a five-month closing low with foreign outflows of $68.6 million.
India's barometer index, the S&P BSE Sensex, was provisionally down 206.60 points or 1.1%, up 100.48 points from the day's low and off 146.42 points from the day's high. All 13 sectoral indices on BSE were in red. The market sentiment hit adversely on data showing that foreign institutional investors (FIIs) remained net sellers of Indian stocks on Friday, 21 June 2013. Weakness in global stocks also weighed on sentiment on the domestic bourses.
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