Chinese Economic Loosening Not in the Cards?

Gene Linn |

China Central Bank People'sChina stocks continued to bob up and down with a sharp dip on Friday. One of the biggest hopes for a breakthrough to higher ground is that China will launch more interest rate cuts and other monetary loosening measures, but one brokerage says, don’t count on it.

On Friday the Hang Seng Index in Hong Kong sank 1.2% to 19,880. It has bounced around the 20,000 mark since jumping 1,352 points between July 25 and August 9. The index of Chinese companies, H-shares, fell 1.6%. For the week the Hang Seng lost 1.2% and H-shares declined 1.6%. Turnover, thin throughout the week, dropped further on Friday.

Expectations of monetary loosening by central banks in the U.S., Europe and China have propped up markets in the last month. But one brokerage research department said this week there is little pressure on China to launch more cuts in banks’ required reserve ratios or interest rates.

“The fact that companies can now obtain money more easily through bond offerings rather than bank loans also lessens the need for RRR cuts to release credit supply,” the brokerage said in a strategy report. “If credit demand is indeed weak because of scarce investment opportunities, then lowering interest rate will not help.”

The report also said that China already has plenty of liquidity, with 7.6% growth, low inflation and an increase in the broad money supply at about 14%. It added that possible rises in food and housing prices in the next few months will discourage reductions in interest rates or other loosening steps.

The market still could get a lift from monetary easing In the U.S. and Europe, but if this brokerage is correct, stocks will get little help from the Chinese central bank. End

DAILY FIX

Hong Kong Blue Chips: -252, -1.2%, to 19,880, 08-24-12, Hang Seng Index

Chinese Stocks in Hong Kong: -161, -1.6%, to 9,675, 08-24-12, HSCE Index

Shanghai Stocks: -21, -1.0% to 2,092, 08-24-12, Shanghai Composite Index.

Chinese Stocks in the U.S.: -1.4, 366.6, 08-23-12, Bank of New York Mellon, ADR Index-China

Insight: Emerging doubts that the U.S. central bank would launch new monetary easing policies helped push Hong Kong blue chips below their 10-day and 20-day moving averages. PetroChina (PTR) slumped 0.6% after disappointing earnings results. Bank of China HK (BHKLY) fell 1.2% even though results met expectations. KGI Research

Quotable: "We expect the Hang Seng Index to move between 19,800 and 20,300 in near term." Guoco Capital. 8-24-12

Chinese Company to Watch: "NewOcean Energy (342,HK) - Business rapidly develops with substantial rise of profits. Company profile: NewOcean Energy is South China's largest liquefied gas operator." Philip Securities. 8-24-12

Brokerages and analysts cited here have disclaimers on their websites emphasizing their statements are for information only. They do not endorse my blog, and I don’t endorse them.

For a list of Chinese companies sold in the U.S. and information on each company go to http://www.adrbnymellon.com/dr_country_profile.jsp?country=CN

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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