China: Market extends gain

Mainland China equity market surged on Thursday, 05 March 2020, as investors continued bottom fishing after the International Monetary Fund (IMF) announced a $50 billion aid package on Wednesday to combat the impact of the coronavirus. Meanwhile, buying momentum spirited on decline in new coronavirus cases and on expectation for more domestic policy stimulus to tackle the economic fallout from the coronavirus. Around late afternoon, the benchmark Shanghai Composite Index surged 1.8%, or 54.23 points, to 3,065.90. The Shenzhen Composite Index, which tracks stocks on China's second exchange, was up 1.54%, or 29.29 points, to 1,925.03. The blue-chip CSI300 index advanced 2.1%, or 85.94 points, to 4,201.

Markets widely believe the authorities will continue to move to lower financing costs for business and roll out powerful measures prop up the economy despite the central bank holding a short-term interest rate this week. The widening economic fallout of the virus has prompted policymakers around the world to step up monetary support, including an emergency 50 basis points interest rate cut by the U.S. Federal Reserve.

 

China is under pressure to reduce interest rates in the near future to offset the economic damage caused by the coronavirus outbreak, spurred on by central bank rate cuts in the United States, Australia and Malaysia on Tuesday. Data released earlier in the week showed that activity in the country's manufacturing and service sectors fell in February to their lowest levels on record, leaving Beijing with little choice but to act to shore up the economy. The US Federal Reserve half-point rate cut gives the People's Bank of China (PBOC), the nation's central bank, more leeway to ease lending rates to support growth. China, though, is unlikely to fully match the US Federal Reserve move to lower borrowing costs after the PBOC gave banks an extra 800 billion yuan (US$115 billion) in February to lend out to struggling businesses and farmers. The Hong Kong Monetary Authority (HKMA), the city's de facto central bank, already acted on Wednesday, matching the Federal Reserve's half point interest rate cut less than 12 hours earlier.

More economic policy moves among the largest western economies are expected in the future after leaders of the Group of 7 (G7) nations said that they were watching the impact of the coronavirus epidemic and remained committed to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.

CURRENCY NEWS: China's yuan edged down against the dollar on Thursday, despite China central bank fixed firmer mid-point rate after upbeat U.S. private payroll data renewed pressure on the Chinese currency adding some investors were also liquidating their long yuan positions to take profit.

Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate CNY=PBOC at 6.9403 per dollar, 111 pips or 0.16% firmer than the previous fix of 6.9514. In the spot market, the onshore yuan CNY=CFXS opened at 6.9399 per dollar and was changing hands at 6.9385 at midday, 125 pips weaker than the previous late session close.

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