China’s regulators rush to reassure investors as equities and renminbi fall

Sponsored Ad
EzCater US
Sponsored Ad
Kinguin WW
Sponsored Ad
Giftmio [Lifetime] Many GEOs
Sponsored Ad
Earn Broker Many GEOs
Sponsored Ad
Malabar [CPS] IN

Unlock the Editor’s Digest free of charge

China’s regulators sought to reassure markets on Monday as equities and the renminbi prolonged losses in a rocky begin to the yr, following weak economic data and geopolitical uncertainty ahead of Donald Trump’s inauguration.

Mainland China’s benchmark CSI 300 index edged down 0.2 per cent on Monday and has declined 4.1 per cent in the primary three trading days of the yr, marking the worst begin to 2025 amongst major Asian indices.

Small-cap stocks on the CSI 2000 have fallen 6.6 per cent because the start of the yr. Hong Kong’s Hang Seng index shed 0.4 per cent on Monday and is down 1.2 per cent up to now this yr.

The declines got here as China’s stock exchanges held meetings with international investors and the central bank reaffirmed its determination to maintain the currency stable, with Trump’s threat of dramatically increased tariffs on Chinese exports looming.

“In the intervening time everyone seems to be wondering what Trump 2.0 will bring,” said Jason Lui, head of Asia-Pacific equity and derivative strategy at BNP Paribas. “It’s reasonable for investors to try to take some profit.”

China’s currency slid to a 15-month low of Rmb7.33 to the dollar on Monday, despite the People’s Bank of China holding regular its every day trading band for onshore renminbi. Selling pressure on China’s currency tends to be correlated with downward pressure on Chinese equities, said analysts.

Weak manufacturing data, a two-year high for the dollar index and Trump’s impending return all contributed to outflow pressure on Chinese stocks, said Kevin Liu, strategist with CICC.

The Shanghai and Shenzhen exchanges sought to reassure investors that China’s economy was supported by “solid fundamentals and resilience” during a weekend meeting with foreign institutions “to solicit opinions and suggestions” on recent moves in Chinese equities, they said on Sunday.

The central bank on Monday kept the every day fixing rate — the midpoint around which the renminbi is allowed to trade 2 per cent in either direction against the dollar — at Rmb7.19, despite selling pressure on the currency.

Its newspaper, the Financial News, said the central bank would “resolutely guard against the danger of exchange rate overshooting and maintain the essential stability” of the renminbi.

It added that the central bank’s past “experience of multiple rounds of appreciation and depreciation” showed it had “sufficient” tools to maintain the exchange rate “mainly stable”.

In one other sign of weak sentiment, investors continued to buy long-dated sovereign debt, as concerns over weak domestic consumption bolstered bets that the PBoC would further ease monetary policy.

The yield on 10-year Chinese government bonds fell 0.015 percentage points to 1.61 per cent on Monday, after hitting its all-time low below 1.6 per cent last Thursday. Bond yields move inversely to prices.

The weaker opening to the yr comes despite announcements from Beijing that it wants to spice up domestic consumption following a protracted property crisis.

China’s rubber-stamp parliament is ready to fulfill in March to unveil its economic policy agenda for what is anticipated to be a difficult yr.

“By way of key things to search for in 2025 . . . we predict investors have to see more regarding consumption,” said Winnie Wu, chief China equity strategist at Bank of America, adding that government support for the private sector and youth employment can be essential.

Despite the rough begin to 2025, analysts noted that Chinese equities had a robust 2024 after a protracted slump, with the CSI 300 ending the yr up 14.7 per cent.

“We do think the worst of derating is over,” said Wu.