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China's turbulent stock markets slipped again on Wednesday, as a double-barrelled blast of central bank stimulus failed to convince investors of Beijing's ability to jolt the world's second biggest economy out of its slowdown.
After watching share prices tumble around 25 percent in a little more than a week, the People's Bank of China re-entered the fray late on Tuesday, cutting interest rates and further loosening bank lending restrictions.
The response from China's two main stock indexes - never reliable barometers of the domestic economy - was typically erratic, lurching between gains and losses of more than 3 percent before ending the day modestly lower.
European markets had risen sharply immediately after the People's Bank of China's move on Tuesday, but U.S. indexes turned negative after an initial leap, setting the tone for a lacklustre session in Asia on Wednesday.
"The whole market sentiment is still risk-off, which is why markets have taken the latest move from Beijing in their stride and believe more is needed to restore investor sentiment," said Grace Tam, global markets strategist at JP Morgan Asset Management in Hong Kong.
The CSI300 index of the biggest listed companies in Shanghai and Shenzhen closed down 0.6 percent, while the Shanghai Composite Index fell 1.3 percent.
Investors' caution was understandable, said Lim Say Boon, Chief Investment Officer at DBS Bank, as the policy moves would have little impact on consumption in a nation of savers, or investment in a country where government, not the "animal spirits of the private sector", takes the lead.
"What the market is waiting for (is) the 'big bazooka' of government spending," he wrote in a note.
There was also concern that the PBOC was simply playing catch-up. ANZ Bank noted that, even after four interest rate cuts since November, the negative producer price index (PPI) was keeping real borrowing costs elevated.
"With the PPI at minus 5.4 percent y/y in July, the real interest rate costs could be well above 10 percent," it said.
"We believe that the traditional monetary policy easing, such as cutting RRR (reserve requirement ratio) and lowering the interest rate, is not sufficient to mitigate the risks associated with China's highly leveraged economy," it added.
SURPRISE DEVALUATION
Concerns about China's economy intensified after factory activity shrank at its fastest pace in almost 6-1/2 years and the central bank unexpectedly devalued its yuan currency earlier this month.
There is, however, little evidence that the stock market mayhem has hit consumer spending so far.
Confidence among Chinese consumers rose for the third consecutive month in August, according to a Westpac MNI survey, as household finances continued to improve.
OCBC Bank noted that cuts in the RRR were needed to ease the liquidity pressures created by capital outflows that had been exacerbated by the yuan devaluation. It said it expected at least another 100 basis point cut this year.
Japanese automaker Suzuki Motor Corp highlighted the problem manufacturers in China face, with its sales faltering as the economy slows. It said on Wednesday it needed to adjust its production capacity in the country, which was roughly twice what it could sell.
"Currently, there is still downward pressure on China's economic growth," the central bank acknowledged on Tuesday.
Investors are also concerned that China is growing at a much slower pace than the official 7 percent target for 2015.
Despite that, a majority of economists predict a continued deceleration - rather than a crash - for China's economy, and most dismiss comparisons with the 2008 global financial crisis or the 1997/98 crisis in Asia.
"The upshot is that there is no sign in the recent data of a deepening economic crisis," wrote analysts at Capital Economics. "With policy support gathering force, a rebound in growth still looks the most likely outturn for the next couple of quarters."
(Additional reporting by Pete Sweeney in Hong Kong, Nathaniel Taplin and Kazunori Takada in Shanghai and Koh Gui Qing in Beijing; Writing by Will Waterman; Editing by Alex Richardson)
