Tuesday, August 25, 2009

More speed bumps, China Stocks Tumble 2.59% (intra day low -6%)

Investors in China led the selling across Asia Tuesday, with concerns about more speed bumps for the economy pushing bank shares lower. Most major indexes across the region were also in the red.

The Shanghai Composite Index sold off sharply, led by banking stocks, after Premier Wen Jiabao said China would keep its monetary policy loose as the economy faces new difficulties, including trouble boosting domestic consumption.

In a downbeat statement published after the market closed on Monday, Wen said Beijing would ensure a sustainable flow of credit and a reasonably sufficient provision of liquidity to support growth.

The benchmark index had staged a technical rebound over the past three trading days after a 20-percent slide in the two weeks to last Wednesday's close, spurred by profit-taking and worries over fresh share supplies among other factors.

Traders said Wen's comments cast fresh uncertainty over China's economic recovery, which showed signs of slowing in July after solid improvement in the first half. Such uncertainty might limit the room for stocks to rebound in the near term.

At the same time, however, signs of a possibly quicker-than-expected global economic recovery might gain increasing influence over China's stock market, traders said.

Industrial Bank tumbled 6.30 percent to 34.34 yuan after it posted a disappointing 4.9 percent drop in net profit to 6.22 billion yuan ($911 million) in the first half from a year earlier. That dragged share prices of other banks lower as well.

Hong Kong’s Hang Seng followed China down as market liquidity receded.

"The inflow of liquidity into Hong Kong has been falling, and this will affect blue chips and China-related stocks, but the short-term pressure will not be that significant," said Capital Securities (HK) research head Jaseper Tsang.

"Buying momentum and buyers' positions may ease, but investors are expecting more positive economic data which should make companies' profitability sustainable, and that should give support to the market in the coming months," he said.

Tokyo Slips with Elections Eyed

The Nikkei average fell as exporters such as Canon took a breather after a rally the previous day, while investors focused on Japan's Aug. 30 general election and U.S. economic data.

Market analysts say many expect Japan's opposition Democratic Party to gain power but investors remain hesitant about actively taking positions before they see the results, though some say the election has already become a neutral trading factor.

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