Markets Weigh Conflicting Signals From China

Markets Weigh Conflicting Signals From China

Markets Weigh Conflicting Signals From China

The FINANCIAL -- Stocks in Hong Kong, Shanghai and Japan wavered between positive and negative territory on April 20 as investors weighed market-moving measures from China, including a cut to the amount of reserves Chinese commercial banks are required to hold.

The Shanghai Composite Index was up 0.3% at 4300,68 while the Hang Seng Index was down 0.2% at 27601.37. Japan's Nikkei Stock Average was roughly flat while Australia's S&P ASX 200 was down most in the region, off 0.9%, according to Nasdaq.

On Sunday, China's central bank introduced its second reduction in less than three months to banks" reserve ratios and the largest in magnitude since the 2008 financial crisis, to counter a slowing domestic economy. On Friday, the country's securities regulator warned investors about soaring stock markets and expanded the use of a mechanism used to bet against stocks, before moving to allay fears on Saturday that it wanted to clamp down on the market.

 The attempt to take some froth out of the market but not tamp down too aggressively was stoking the hopes of some fund managers, who remain positive about stocks in the short term.

"They don't want to see the index rise too fast," said Larry Hu, head of greater China economics at Macquarie Group, on Chinese securities regulators" intentions. "But they don't want to see [the] market collapse right now either."

More stimulus from China is expected this year, potentially driving further gains in the market, even though the latest one-percentage-point cut to banks" reserve ratios was more aggressive than market watchers expected. " Effectively, [China] showed its bottom line" on Saturday, while Sunday's move gives "an additional nice surprise" to the market, said Vincent Chan, equity strategist at Credit Suisse.

Still, conflicting moves from China's central bank and securities regulator are putting investors on increased guard for volatility. Futures for the FTSE China A50 Index slumped as much as 6% Friday night and global markets fell, following China's announcement that it was expanding short selling.

As of Friday's close, the Hang Seng Index was up 17% year-to-date, with most of the gains coming in April. The Shanghai Composite Index was up 33%, and the mainland's even-riskier stocks in Shenzhen were up 51%, some of the best performing anywhere.

"We think any potential short-term correction could be moderate," said Kinger Lau, China strategist at Goldman Sachs, of the mainland and Hong Kong markets. He added that it could be an opportunity for global investors who are still underweight on Chinese stocks and have missed the recent rally, to buy.