The Chinese market is now in a correction phase after the biggest weekly fall since February.
The market is off almost 13% in two weeks: 10% is the usual measure for a correction.
The Shanghai Composite Index ended the week down 6.55%, sending the benchmark equity index to a six-week low, on continuing concerns about the country’s monetary policy stance.
That was the second largest weekly fall this year so far.
The market was up 80% this year and had doubled since last October, so a correction of 10% or so would be expected.
The 2009 rally is back to 67%, still impressive.
But if it continues to grow this week, then a watchful eye should be kept.
Most of the fall last week came on Thursday and Friday and came despite repeated assurances that policy wouldn’t change from the central bank, senior economic officials the week before, and Premier Wen Jiabao.
The basically solid economic data for last month midweek hasn’t helped, especially news of a sharp fall in bank lending in July, even though that was widely expected to happen after the enormous surge in the June half year.
Official concern at flagging stock prices was signalled on Friday by Shang Fulin, chairman of the China Securities Regulatory Commission, who tried to boost confidence by stating “the market’s internal and external environment is further improving”.
However, his comments appeared to have little effect on concerns that Beijing may seek to limit levels of lending after new loans tripled for the first half compared with the same period a year ago.
The Shanghai index fell 3% on Friday and is driving the correction. That was after a similar sized fall on Thursday.
The slump so far hasn’t spread to other markets in the region last week after being cautious the week before.
Japanese shares rose for a fourth week to fresh 10-month highs, with the Nikkei 225 gaining 1.9% over the week. And the Australian market rose 3.7%.
Chinese banks and financial were weak with Industrial & Commercial Bank of China dropping 3.2% on Friday; China Minsheng Banking Corp, the country’s first privately owned bank, fell 4.6% to bring its loss for the week to 7.3%.
There remains suspicion that the government is moving quietly to bring bank lending under control.
An estimated one third of all bank loans are claimed to have gone into property and stockmarket punting.
Exports remain weak and fell 23% in July from a year ago; urban investment was lower than expected, bank loans fell 77% in the month, but car sales jumped 80%.
New loans plunged to 355.9 billion Yuan in July, less than a quarter of advances in June, according to the central bank.
News of the big drop in lending made investors suspicious, along with comments Friday from the country’s main bank regulator.
China Daily reported over the weekend on its website:
"China’s top banking regulator Liu Mingkang urged the country’s joint-stock commercial banks Friday to strengthen management over risks and closely monitor the flow of capital to prevent credit risk.
"Liu’s comment came as concerns over risks in the country’s dramatic increase in new loans remained, though new loans in July fell sharply from earlier months.
"We should be clear-headed that the current situation remains very grim," Liu said at a joint conference of presidents of the country’s joint-stock banks.
"All banks should pay close attention to new developments in the economic and financial sectors, and carefully watch risks and factors that may impact the stability of the financial system, Liu said.
"Despite a slower growth in lending last month, new loans made by Chinese banks topped 7.73 trillion Yuan ($1.14 trillion) in the first seven months, far exceeding the annual target of 5 trillion Yuan.
"China’s central bank had repeatedly said in the past month it would maintain the moderately easy monetary policy to support the economy, but has also asked lenders to tighten risk monitoring and risk control."
That will get the punters worried.
