Chinese equity market continued to fall today despite the rate cut stimulus package extended by the People’s Bank of China yesterday. Leading index, the Shanghai Composite Index (SCI) fell by 1.3 %, which is a smaller dip compared to near double digit fall registered on the previous day. For the first time in this year, the SCI fell below 3000 mark and closed at 2927.
Yesterday, the PBOC (People’s Bank of China) has cut its policy rate by 25 bps and the reserve ratio by 50 basis points.
The continuing decline in stock prices indicates that the market is in an auto correction mode in the context of falling GDP growth. Stock prices that doubled in the last one year are in the process of self correction. The SCI was in the range of 2100 almost a year ago.
Stock indices around the world also emulated the Chinese way on Wednesday.
Markets continued under the Chinese crash hangover and many indices registered decline. Almost all European markets are in red on the other day and trade is to be started soon. In India, the Sensex registered a decline of 1.3%.
But in Japan, the Nikkie recovered smartly.
“Asia remains the epicenter of the current market instability,” an investment banker with the guardian newspaper of Britain has observed. “Market ‘stability’ will then come from this region. However the slide in China and Japan suggest sentiment is ruling price action and hyper-fear trading is still in control.”
It is expected that Chinese development will pull the global markets in the coming days. After that, the macroeconomic scenario like investment, export, growth performance etc., all may register decline under the weight of the slowing Chinese economy.