A-shares plunge 4% with nearly RMB 10 bln outflow, more than 3000 stocks fell
Oct 09, 2018 (China Knowledge) - At the first day of trading after China's National Day holidays, Chinese stocks fell sharply. As for closing, Shanghai Composite Index closed at 2,716.51, down 3.72%. Shenzhen Component Index closed at 8,060.83, down 4.05%. The ChiNext Index closed at 1,353.67, down 4.09%.
From an industry perspective, Financials, liquor and oil have a big impact on Shanghai Composite Index. China Construction Bank <601939.SH> closed down 4.28%, PetroChina <601857.SH> closed down 3.71%, Sinopec <600028.SH> closed down 7.02%. Besides that, China's largest liquor company Kweichow Moutai <600519.SH> closed down 6.01%.
In Shenzhen Component, the blue chips with new technology were sold off. Hikvision <002415.SZ> and Zhifei Biological <300122.SZ> limited down. In addition, China's leading real estate company Vanke <000002.SZ> closed down 9.26%, China's largest household appliance enterprise Gree <000651.SZ> also closed down 5.65%.
In addition, the net outflow from Shanghai-Hongkong stock connect was RMB 7.31 billion, the second highest in the year (RMB 7.37 billion on February 06). The net outflow from Shenzhen-Hongkong stock connect was RMB 2.30 billion, the third highest in the year (3.40 billion on April 26 and 2.30 billion on February 06).
In the nine trading days since September 13, the cumulative net inflow of RMB 21.55 billion on the back of A-shares to enter FTSE Global Equity Index and Morgan Stanly Capital Index (MSCI) to increase the weighting of A-shares in the emerging market index. However, only one day the fund had returned by nearly half.
ChinaKnowledge's analyst think A-shares are struggling now. There are two main factors influencing the stock market at present.
One is the pressure from the rising U.S. dollar. In recent days, People's Bank of China (PBoC) announced a 1% reduction in the Reserve requirement ratio (RRR) to stabilize the economy. But the 1% beats the market expectations of 0.5%. This shows that PBoC thinks more about the domestic economy while formulating a policy. This reduction may release RMB 1.2 trillion of liquidity. There is still RMB 750 billion left after repay of Medium-term Lending Facility (MLF).
PBoC's monetary policy is at odds with the Federal Reserve's policy of raising interest rates. In the dilemma of internal and external pressures, it is obvious that PBoC chooses to give priority to internal problems, so it also means further pressure on the currency in the short term. The rising U.S dollars makes the fund flow from China and other countries to Washington, causing the global market collapse, China is no exception.
The other aspect is the escalation of trade war between China and the U.S. In the long duration of Sino-U.S. trade war, because of the sluggish business performance of enterprises or a general decline in their profit, it will lead to a sharp rebound of banks' bad credit assets and a decline in their ability to resist risks. As a result, it will have bad influence in banking industry, further in China's stock markets.
Hence, the relations between China and the U.S. affect A-shares and largely determine the direction of the international situation in the 21st century.
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