1. Liquidity, economy concerns shut China stocks out of weekly global rally

Liquidity, economy concerns shut China stocks out of weekly global rally

China stocks ended the week little changed on Friday, bucking a global equity rally as investors worried about tightening liquidity and conflicting signals on the health of the world's second-largest economy. For the week, the CSI300 inched up 0.2 percent, while the SSEC slipped 0.1 percent.

By: | Published: June 2, 2017 1:46 PM
The blue-chip CSI300 index fell 0.3 percent to 3,486.51 points, while the Shanghai Composite Index added 0.1 percent to 3,105.54.

China stocks ended the week little changed on Friday, bucking a global equity rally as investors worried about tightening liquidity and conflicting signals on the health of the world’s second-largest economy. The blue-chip CSI300 index fell 0.3 percent to 3,486.51 points, while the Shanghai Composite Index added 0.1 percent to 3,105.54.¬†For the week, the CSI300 inched up 0.2 percent, while the SSEC slipped 0.1 percent.

Over the weekend, the securities regulator published rules aimed at preventing major shareholders of listed companies from reducing their holdings in an “intensive, massive and disorderly” manner that “disturbed market order and dented investor confidence”.

The new regulations were widely expected to help maintain stability in the market dragged by expectations of more equity supply.

However, some analysts saw limited help from that. “Share sales restrictions don’t address the fundamental issues,” said Su Peihai, analyst at brokerage Guangzheng Hang Seng. “Sentiment is weak because investors worry about liquidity and are pessimistic toward the economy.”

The new policy is not a decisive factor that could determine medium-range movements in the stock market, UBS strategist Gao Ting wrote. Sentiment was also hit by the Caixin manufacturing survey on Thursday, which suggested activity contracted last month as demand weakened.

That contrasted with official business readings on Wednesday which showed solid growth in factories and services, but underlined investors’ nervousness about the outlook for the rest of the year.

Most market watchers expect China’s economic growth to slow gradually in coming months after a strong first quarter.

This month, the U.S. Federal Reserve is likely to raise rates and Chinese banks face mid-year health checks from the central bank, so “deleveraging and tighter liquidity” remain the biggest concerns for investors, offsetting any short-term relief from a strengthening yuan, Su said.

Echoing such fears, a Moody’s survey published on Friday suggests China’s slowdown and higher corporate debt levels represents the biggest risk to emerging market credit.

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