China stocks edge higher despite persistent liquidity concerns
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Chinese equities posted modest gains on Thursday, as the People's Bank of China's (PBOC) liquidity injections provided some relief amid heightened demand for cash. However, market sentiment remained cautious due to ongoing concerns about tight liquidity conditions.
Market performance: modest gains across key indices
The Shanghai Composite Index rose by 0.28%, adding 8.92 points to close at 3,236.03. Similarly, the Shenzhen Component Index gained 0.41%, increasing by 40.97 points to reach 10,101.10. These gains come despite rising concerns in China’s money markets.
The volume-weighted average of China’s seven-day repurchase rate climbed to 2.32%, its highest level since October 2023, signaling ongoing strain in short-term liquidity. Bloomberg News reported a rare 10-minute delay in the official close of the clearing system late Wednesday, reflecting intensified demand for cash.
PBOC's response to liquidity challenges
To address the liquidity crunch, the PBOC infused 340.5 billion yuan on Thursday, following more than 1 trillion yuan injected earlier in the week. These measures aim to mitigate the impact of peak tax season and pre-Lunar New Year cash demand. However, analysts warn that these efforts may only meet immediate demand rather than significantly easing liquidity conditions.
Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp, suggested that while additional liquidity injections are expected next week, they are unlikely to bring substantial relief to the market.
Broader economic and trade developments
On the international front, U.S. imports from China surged by 14.5% in December, as companies stockpiled goods ahead of President-elect Donald Trump’s inauguration on January 20. Trump’s proposed tariffs of up to 60% on Chinese goods have fueled uncertainty in the trade landscape.
Meanwhile, ByteDance’s TikTok is set to cease operations in the U.S. on Sunday, following a law mandating its closure. The Supreme Court has yet to rule on a motion to reverse the ban, adding to geopolitical tensions.
Corporate highlights
New China Life Insurance shares rose by 2% in Shanghai after former chairman Li Quan was formally charged with embezzlement and bribery. Li is accused of misappropriating public funds and accepting bribes to facilitate profiteering for others.
CNOOC’s Shanghai-listed shares climbed 3% after its joint venture with Shell announced a 60 million yuan investment in a petrochemical plant in Huizhou, Guangdong. This development underscores ongoing industrial investments despite macroeconomic challenges.
As the PBOC navigates the delicate balance between addressing liquidity needs and preventing capital outflows, market participants remain watchful for further policy signals and longer-term injections to stabilize conditions.
Market performance: modest gains across key indices
The Shanghai Composite Index rose by 0.28%, adding 8.92 points to close at 3,236.03. Similarly, the Shenzhen Component Index gained 0.41%, increasing by 40.97 points to reach 10,101.10. These gains come despite rising concerns in China’s money markets.
The volume-weighted average of China’s seven-day repurchase rate climbed to 2.32%, its highest level since October 2023, signaling ongoing strain in short-term liquidity. Bloomberg News reported a rare 10-minute delay in the official close of the clearing system late Wednesday, reflecting intensified demand for cash.
PBOC's response to liquidity challenges
To address the liquidity crunch, the PBOC infused 340.5 billion yuan on Thursday, following more than 1 trillion yuan injected earlier in the week. These measures aim to mitigate the impact of peak tax season and pre-Lunar New Year cash demand. However, analysts warn that these efforts may only meet immediate demand rather than significantly easing liquidity conditions.
Frances Cheung, head of FX and rates strategy at Oversea-Chinese Banking Corp, suggested that while additional liquidity injections are expected next week, they are unlikely to bring substantial relief to the market.
Broader economic and trade developments
On the international front, U.S. imports from China surged by 14.5% in December, as companies stockpiled goods ahead of President-elect Donald Trump’s inauguration on January 20. Trump’s proposed tariffs of up to 60% on Chinese goods have fueled uncertainty in the trade landscape.
Meanwhile, ByteDance’s TikTok is set to cease operations in the U.S. on Sunday, following a law mandating its closure. The Supreme Court has yet to rule on a motion to reverse the ban, adding to geopolitical tensions.
Corporate highlights
New China Life Insurance shares rose by 2% in Shanghai after former chairman Li Quan was formally charged with embezzlement and bribery. Li is accused of misappropriating public funds and accepting bribes to facilitate profiteering for others.
CNOOC’s Shanghai-listed shares climbed 3% after its joint venture with Shell announced a 60 million yuan investment in a petrochemical plant in Huizhou, Guangdong. This development underscores ongoing industrial investments despite macroeconomic challenges.
As the PBOC navigates the delicate balance between addressing liquidity needs and preventing capital outflows, market participants remain watchful for further policy signals and longer-term injections to stabilize conditions.