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Photographer: Billy HC Kwok / Bloomberg
Photographer: Billy HC Kwok / Bloomberg
A chill swept through Chinese financial markets after the central bank pulled liquidity from the banking system and an official warned of asset bubbles.
People’s Bank of China drained about $ 12 billion through open market operations on Tuesday. The move was unusual in the weeks leading up to the Lunar New Year holiday, which falls in 2021 in mid-February, as residents typically need more money to pay for seasonal travel and freebies. This also ran counter to recent reports in Chinese newspapers that liquidity would not be tightened before the holidays.
While Tuesday’s pullback was small in isolation, he added to signs that Beijing is wary of how cheap and plentiful liquidity has fueled excesses in markets. PBOC adviser Ma Jun said local media that the risks of asset bubbles – such as in the stock market or real estate – will remain if China does not focus instead on job growth and inflation management.
Read: Central bank in era of pandemic is creating bubbles everywhere
The reaction was particularly brutal in the Hong Kong stock market, where onshore funds were helping to support a global rally. Mainland Chinese investors bought Hong Kong $ 250 billion ($ 32 billion) net of Hong Kong shares this year through Monday, nearly 40% of last year’s total, and again been buyers Tuesday. The Hang Seng Index was down 2.6% from its highest level since June 2018, led by a 7.2% drop in Hong Kong Exchanges & Clearing Ltd. and 6.3% dive into Tencent Holdings Ltd.
In continental markets, a gauge of interbank borrowing costs jumped 36 basis points to 2.78% on Tuesday, the highest level in a year. Chinese government bond futures expected in a decade were on the verge of the biggest drop since September, while the CSI 300 index of Shanghai and Shenzhen stocks, which approached the 2007 record high. , fell 2%.
“The PBOC wants to get investors out of the euphoria caused by the abundance of liquidity in December,” said Xing Zhaopeng, economist at Australia & New Zealand Banking Group. “The PBOC is unlikely to loosen its purse strings at least this week, which will make monthly liquidity very tight.”
PBOC Governor Yi Gang Monday said the central bank would seek to support economic growth while limiting risks to the financial system – a continuation of its current policy. Yi said China’s debt-to-total output ratio climbed to around 280% by the end of last year.
Tencent’s decline came after the stock jumped 11% on Monday, its best day since 2011, to approach a market value of $ 1 trillion. With over a billion people using its social media platform WeChat, Tencent is ubiquitous for Chinese investors who do not have access to its rival’s Hong Kong stocks. Alibaba Group Holding Ltd. through commercial links.
– With the help of Jeanny Yu
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