SHANGHAI: China stocks closed down 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 ended 0.2% lower, while the Hong Kong’s Hang Seng Index fell 1% to around one-month lows.
The yuan also weakened to a nine-month low, even after sources said 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.” Shares in tourism, semiconductors, photovoltaic and media companies lost 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.
“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 9.7 billion yuan ($1.33 billion) on the day. Bucking the trend, financials stocks rose more than 1%, with securities firms up 1.7%. Bloomberg News reported that Chinese authorities are considering cutting the stamp duty on stock trades for the first time since 2008.
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