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 Chinese stocks had fallen again on Wednesday - taking their losses
to more than 20 percent in just five days - underscoring fragile
investor confidence and deep doubt over whether the previous day's
policy easing by the People's Bank of China's (PBOC) could stabilize
the economy.
Concerns about China's slowing growth have been rising all year with
a constant drip-feed of deteriorating economic data, including an
official purchasing managers' survey last week suggesting that
factory activity shrank this month at its fastest pace in almost
6-1/2 years.
A Reuters poll of August manufacturing activity on Wednesday
confirmed a rapid slowdown.
An unexpected devaluation of the yuan two weeks ago added to
suspicions that Beijing was worried about its exporters, which have
led its breakneck growth for two decades.
The yuan edged up against the dollar on Thursday, buoyed by the rise
in stocks, though the PBOC set the daily guidance rate, from which
the spot rate can vary by up to 2 percent, at its lowest level since
2011.
"The recovery on the yuan may be just a flash," said a trader at a
foreign bank in Shanghai. "Many companies and big investors are
worried about the prospect of the currency's depreciation."
Late on Tuesday the PBOC cut interest rates and freed up banks to
lend more, but that stimulus had failed to convince local stock
markets of Beijing's ability to reverse the slowdown in the world's
second biggest economy.
"FANTASY GROWTH"?
Markets in New York had also been unimpressed by China's efforts to
calm investors' nerves, until New York Fed President William Dudley
said the prospect of a September rate hike seemed "less compelling"
than it was just weeks ago.
That fueled a 3.95 percent rise in the Dow Jones Industrial Average,
its biggest one-day gain in four years, which carried over into
Asia.
The CSI300 index <.CSI300> of the biggest stocks in Shanghai and
Shenzhen was up 5.95 percent at the close, and the Shanghai
Composite Index <.SSEC> rose 5.4 percent. Futures contracts on the
CSI300 <CIFc1> were up 7.3 percent at 3,030, but still more than 5
percent below the underlying index, which suggests investors expect
further weakness.
Not all, however.
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"From today, I'm no longer pessimistic," said Jiang Chao, a
strategist at Haitong Securities, who correctly predicted China's
year-long bull run, which ended in mid-June.
China's two main stock indexes have never been reliable barometers
of the domestic economy and unlike most developed-world bourses are
dominated by retail investors, which makes them particularly
volatile, but the weight of worsening economic news finally helped
bring an end to the bull run.
Even if China hits its official target of 7 percent growth this year
that will still be its slowest pace of expansion in 25 years.
Many economists suspect that the official figures are too
optimistic.
On Thursday, one of China's richest men, Wang Jianlin, chairman of
property and investment firm Dalian Wanda, said China should give up
the "fantasy" of 7-8 pct economic growth and accept a slower rate
that was "sustainable and safe".
For all 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.
Japan's central bank governor Haruhiko Kuroda said on Wednesday that
market players had become "too pessimistic" about China, and he
expected its growth would likely remain at 6-7 percent this year and
next and would not have a very negative impact on Japanese exports.
(Additional reporting by Shu Zhang and Matthew Miller; Writing by
Will Waterman; Editing by Alex Richardson)
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