SHANGHAI: China stocks fell on Tuesday even after the central bank unexpectedly cut key policy rates to support growth, following the latest data showing the country’s economic activity slowed further last month.
China’s blue-chip CSI 300 Index dropped 0.5% by the lunch recess, while the Hong Kong’s Hang Seng Index fell 0.8% to hover around one-month lows.
The yuan also weakened to a nine-month low, and sources told Reuters that China’s major state-owned banks stepped into the spot market to steady the currency.
Asian stock markets wallowed at one-month lows. Data on Tuesday showed China’s July industrial output and retail sales growth slowed and undershot forecasts.
To boost confidence, the People’s Bank of China cut the rate of one-year medium-term lending facility (MLF) by 15 basis points to 2.50% to some financial institutions.
“The weak dataset continues to paint a bearish picture on China after the Politburo meeting,” said UBS analysts in a note. “Most investors are in wait-and-see mode, only willing to allocate tactically to China on expectations of stimulus.”
Most sectors fell, with shares in tourism, semiconductors, photovoltaic and media companies losing more than 2% each to lead the decline.
The weak market also comes as investors worry about contagion risk in the country’s financial system, with default risks at some housing developers and missed payments by a private wealth management giant.
“The mix of risk events have put great pressure on the entire market,” said Huang Yan, general manager of private fund manager Shanghai QiuYang Capital.
China shares fall on weak credit data
“The rate cut is not particularly meaningful, and it has only a short-term effect on stimulating the economy. China needs a package of measures, and the core is to solve the demand problem.”
Foreign investors sold China stocks for a seventh straight session on Tuesday, dumping a net 8.4 billion yuan ($1.15 billion) on the day.
Tuesday’s figures come on top of a batch of already gloomy data over the past week, including tumbling credit growth and rising deflation risks.
China’s top leaders had vowed to step up policy support for the economy during last month’s Politburo meeting. Shares in under-pressure developer Country Garden bounced 1.3% after it tumbled to record lows on default worries.
China Evergrande New Energy Vehicle Group jumped 14.7% after the company said it has agreed to sell new shares to US-listed NWTN for $500 million.
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