Comments by a top Chinese leader Monday seemed to say Beijing plans to stick by its easy monetary policy for the foreseeable future, in light of uncertainties over the pace of recovery, analysts said.
In a statement released by the State Council, Chinese Premier Wen Jiabao cautioned against being "blindly optimistic" about the country's economic recovery, saying the boost from short-term policies may fade, while longer-term policies will take some time to have an impact. Wen made the comments at the end of three-day tour of the Eastern province of Zhejiang.
Analysts said the comments suggested China believes it is too early to withdraw its aggressive fiscal stimulus measures. One expert expresses the view that market weakness Tuesday in Shanghai was somewhat baffling, given Wen's reassurance over the direction of monetary policy.
Shanghai’s 300 Composite Index backpedaled 119.77 points, or 3.7%, to 3,109.83.
Strategists at Banc of America Merrill Lynch said in a note released Monday that some investments in the stock market funded through bank lending were likely being unwound amid investor worry about a credit tightening.
The brokerage said that the tougher stance taken by the China Banking Regulatory Commission to rein in lending appears to have upended the market confidence, where "everybody wants to get out before those speculators."
Merrill also said it believes China has entered into the first phase of liquidity tightening, which will see policymakers focus on small-scale tools and avoid any big moves such as hiking rates or lifting banks' reserve requirement ratios.
Merrill said the second phase of policy tightening will take place in the spring of 2010.
Jiangxi Copper Co. sank 5.7% in Shanghai after posting a 61% decline in first-half net income and metals retreated. Aluminum Corp. of China Ltd., which reported its third quarterly net loss, fell 2.9%. Chinese equities posted the region’s worst performance as the nation’s premier warned the economic recovery isn’t stable yet. China Construction Bank Corp. fell 4.3% in Shanghai.
The Nikkei 225 index in Tokyo slipped 83.69 points, or 0.8%, to close at 10,497.36.
In Hong Kong, the Hang Seng index fell back 100.70 points, or 0.5%, to 20,435.24.
Among stocks that gained today, NGK Insulators Ltd. rallied 3.7% in Tokyo after the Nikkei newspaper said the company won an order from Abu Dhabi. Australia’s Woolworths Ltd., the country’s biggest retailer, rose 2.2% on plans for a joint venture with U.S. home-improvement chain Lowe’s Cos.
KB Financial Group Inc. lost 2.9% in Seoul as SunTrust Banks Inc. said U.S. lenders face more credit losses.
Wesfarmers Ltd. slumped 3.5%. Australia’s second-largest retailer is stocking more fresh fruit and vegetables than it can sell to reverse the reputation its Coles supermarket division has for empty shelves and win market share, CEO Richard Goyder said in an interview.
Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, slipped 1.8%. Daiwa Securities Group Inc., Japan’s second-largest brokerage, fell 3.2%.
Suncorp-Metway Ltd., Australia’s third-largest insurer, sank 2.8%. Net income in the 12 months ended June 30 fell 40% to A$348 million ($291 million U.S.) as the company set aside more money to cover bad debt. Impairment losses on loans soared 10-fold to A$710 million.
South Korea’s Daewoo Engineering & Construction Co. surged 9.2% after Edaily reported Blackstone Group LP, KKR & Co. and Permira Holdings Ltd. may bid for the company.
Elsewhere:
Singapore’s Straits Times Index actually gained 6.43 points, or 0.3%, to 2,618.76
South Korea’s Kospi index stepped back 10.84 points, or 0.7%, to 1,601.38
Taiwan’s Taiex moved lower by 28.84 points, or 0.4%, to 6,809.41
New Zealand’s NZX 50 Index tacked on 12.83 points, or 0.4%, to 3,080.50
Australia’s S&P/ASX 200 lost 20.30 points, or 0.5%, to 4,405.80.
