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Chinese stocks continued their declines, initially opening down over 6%, paring this back to 2.8%, then pushing back to a 4% decline.
What is increasingly clear is that the “National Team”, the China Securities Finance Corporation (CSFC), have stopped their daily interventions. The post-Beidaihe consensus appears to be that this was costing the government too much money. Thus, the rallies we are seeing in Chinese markets may have more to do with better valuations than government intervention.
As mentioned in Peter Cai’s recent piece for Business Spectator, the CSFC transferred some of the shares it had bought to Central Huijin investment, the People’s Bank of China-linked (PBoC) fund. This appears to be because the CSFC’s share buying is funded by the Big Four banks, and its funds are interest bearing loans. The transfer to Huijin indicates that the daily interventions are over and that it was simply costing too much money for the government to sensibly continue carrying out these operations.
In China’s delicate economic situation, the combination of controlling their exchange rate through direct intervention in the FX market as well as spending hundreds of billions of US dollars propping up the stock market was clearly costing too much – even for a country with China’s deep pockets. The Chinese stock market will likely find its natural level without overt intervention. And indeed its prospects over the next 12 months are actually looking up, with the likely injection of capital from the Chinese pension funds.
The Nikkei has seen strong rallies after the Nikkei declined 4.6% yesterday, reaching its lowest level since February. The index has seen strong buying today, with the IT, healthcare and financial sectors leading the gains. Tokyo Electron had a particularly good day, gaining 5.2%, on the back of a weakening yen and its own solid growth prospects from the smartphone market.
The Japanese government has been one of the most outspoken in their concerns over China’s recent moves. Chief Cabinet Secretary Yoshihide Suga announced today that Japan was prepared to work with other G7 nations to deal with the coordinated fall in global equities. And when China began their devaluation on August 11, Koichi Hamada, Abe’s economic advisor, announced that Japan was prepared to further devalue the JPY in the face of further declines in the CNY.
The main concern for Japan is oil hitting its lowest levels since 2009, and expectations are that core CPI data from Japan could be negative when it gets released on Thursday. This will add further fuel to the calls from a vocal minority of economists for the Bank of Japan (BoJ) to step up its QQE program in October. Certainly, if this came to pass it would be greatly beneficial for Japanese stocks in 2H, and some of the rallies in the market today may be speculating on this prospect.
The ASX had the second best session in Asia today, only outpaced by Taiwan’s Index, which suffered one of the worst sell offs in the region over the past few days. The ASX was beginning to look oversold, particularly when only 15% of companies were trading above their 50-day moving average.
While the liquidation of commodities and resources over the past couple of days did not bode well for the battered resources- and energy-related stocks. However, the buying opportunities in the ASX today were clearly far too tempting. Banks led the rise today, with the sector up over 4%, and Westpac (WBC) leading the Big Four by gaining over 5%. Westpac, along with some of the other banks, had seen their P/E ratio become very enticing. Westpac’s P/E was sitting at 12.7, below its long term average of 13.2.