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Chinese shares fall as PBOC tightening continues

Oct. 25, 2013 3:58 AM ETFXI, PGJ, CAF, CYB, GXC, FXP, HAO-OLD, CNY, FCHI, XPP, YAO, YINN, YANG, YXI, ECNS, MCHI, FXCH, DSUM, CHLC, TCHI-OLD, CXSE, KFYP, GLCNBy: Yigal Grayeff, SA News Editor
  • Chinese shares dropped for the fourth day in a row, slumping 1.45% after a money market squeeze intensified and repo rates hit their highest levels since the People's Bank of China engineered a credit crunch in June.
  • The overnight rate touched 7.5% at one point and the benchmark seven-day hit 6.94%.
  • A major reason why the rates have increased is that the PBOC has stopped issuing reverse repos during open market operations, which would inject cash at a time when demand is high because of month-end tax and regulatory escrow payments that are due. The bank's lack of action has meant that 58B yuan ($9.54B) has drained from markets this week and 157.5B yuan since September 30.
  • Still rates are well below the levels reached in June, when they hit as high as 30%.
  • Experts are divided over whether the PBOC's strategy is short term and seasonal or whether it signals something more long term as the bank attempts to keep inflation under control and tame the growth in credit.
  • ETFs - Stocks: FXI, GXC, PGJ, YAO, FCHI, PEK, CAF, YXI, XPP, FXP, MCHI, YINN, YANG, TCHI, CHXF, KFYP, HAO, ECNS. Bonds: DSUM, CHLC. Currency: CNY, CYB, FXCH

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