China stocks end lower as liquidity concerns outweigh foreign inflows

SHANGHAI: China stocks ended lower on Thursday, paring some of the sharp losses earlier in the session, as worries over signs of liquidity tension ahead of the upcoming Lunar New Year holiday offset continued capital inflows.

** At the close, the Shanghai Composite index was down 0.44% at 3,501.86, while the blue-chip CSI300 index was down 0.21% to 5,473.95.

** The smaller Shenzhen index ended down 1.1% and the start-up board ChiNext Composite index was weaker by 0.72%.

** Nearly 9.6 billion yuan ($1.49 billion) worth of quota in northbound leg of stock connect scheme linking mainland and Hong Kong was utilised, booking the fifth straight day of net purchase, according to Refinitiv data, suggesting continued foreign capital inflows were supporting the market.

** Liquidity conditions have been a key market focus in the last two weeks, as some investors were worried that policymakers could slowly switch to a tighter monetary policy stance. The volume-weighted average rate of benchmark overnight repo rebounded to above 2%, showing slight signs of tightness again.

** Short-term funding cost in China started to pick up last week as the central bank refrained from making its usual substantial liquidity injections to meet high demand for cash ahead of the week-long Lunar New Year holidays, which starts on Feb. 11 this year.

** The People's Bank of China said it will keep liquidity reasonably ample and support for an economic recovery in 2021 will be maintained without resorting to a flood-like stimulus, a central banker wrote in a magazine article.

** Apart from liquidity concerns, some analysts said as listed companies started to release their preliminary earnings for 2020, some sectors with historically high valuations may face corrections.

** Around the region, MSCI's Asia ex-Japan stock index was firmer by 0.92%, while Japan's Nikkei index closed down 1.06%.