(Bloomberg) -- China’s stock market is slumping despite the central bank’s interest-rate cut this week. Equities continue to face challenges from slowing domestic consumption and harsh international headwinds. Industrial metals such as iron ore and copper, often regarded as a barometer of the health of the Chinese economy, are also slumping.
Meanwhile, China is likely withholding its fiscal firepower in reserve to prepare in case Donal Trump wins this year’s US presidential elections, according to Andrew Tilton, Goldman Sachs’s chief economist for Asia Pacific. This would allow the Asian nation to implement more aggressive stimulus should the US-China trade tensions worsen.
The CSI 300 Index is on track for its worst week since February, after falling more than 2% on Tuesday. That highlights the need for additional support beyond minor monetary policy adjustments.
The People’s Bank of China cut the 7-day reverse repo rate by 10 basis points on Monday. The 1-year and 5-year loan prime rates also declined by the same magnitude shortly after the announcement.
The tumble in stocks showed the extent to which recent gains had been driven by buying from the so-called national team of state-associated institutions. The combined turnover in eight ETFs known to be favored by that group of buyers dropped on Tuesday to be lower than the past year’s daily average.
Industrial metals are all down this month in China. The selloff began even before data reported July 15 showed second-quarter GDP growth was weaker than expected.
Iron ore inventories at ports in China have surged by more than 40% since October. This speaks to anemic demand, particularly from the industrial sector.
No surprise then that the sector breakdown for the CSI 300 shows the energy and material sectors are the worst performers this month.
NOTE: Ernest Tsang is a market content producer for Bloomberg TV. The observations are his own and not intended as investment advice. For more markets analysis, see the MLIV blog.
©2024 Bloomberg L.P.
