2015-04-19

Chinese Regulators Panic, Era of Tight Money Is Over

Turns out we may have only had hours to buy the dip in Chinese stocks as regulators went into panic mode over the weekend.

China Not Trying to Chill Red-Hot Stock Market, Says Regulator
In a statement published Saturday evening, the commission said measures rolled out on Friday, including tightening rules on margin lending and promoting the use of short selling, aren’t aimed at clamping down on a red-hot market.

The measures are about “maintaining the healthy development of the market,” the CSRC said in the statement. “They aren’t intended to encourage short selling, let alone depressing the market…the market shouldn’t over-interpret the measures.”
We're not trying to pop the bubble, but even if we we're, there isn't a bubble. Please continue buying.

The PBOC joining in the panic on Sunday: China makes big cut in bank reserve requirement to fight slowdown
China's central bank on Sunday cut the amount of cash that banks must hold as reserves, the second industry-wide cut in two months, adding more liquidity to the world's second-biggest economy to help spur bank lending and combat slowing growth.

The People's Bank of China (PBOC) lowered the reserve requirement ratio (RRR) for all banks by 100 basis points to 18.5 percent, effective from April 20, the central bank said in a statement on its website www.pbc.gov.cn.

"Though the growth in the first quarter met the official target of around 7 percent for 2015, the slowdown in several areas, including industrial output and retail sales, has caused concern," said a report published by the official Xinhua news service covering the announcement.

The latest cut, the deepest single reduction since the depth of the global crisis in 2008, shows how the central bank is stepping up efforts to ward off a sharp slowdown in the economy.

"The size of the cut is more than expected," said Shenwan Hongyuan Securities analyst Chen Kang.

"It's going to release around a trillion yuan (in liquidity) at least."

...Premier Li Keqiang publicly exhorted banks to lend more to the real economy during a visit to major banks on Friday.
One of the main arguments here for the past couple of years was the tight money orientation of Xi, Li and Zhou. I don't think that is the case anymore. While monetary policy may be tight because the central bank is behind the curve, the era of tight monetary policy is over.

The cut is positive for equities. Thus far CNH and CNY are stable, but let's see if it holds.

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