China stocks soar, but Shanghai suffers biggest monthly drop in 7 years

January 30
3:31 AM 2016

Chinese stocks rallied and closed higher on Friday (29 January), last session of the month. However, Shanghai Composite Index registered its biggest monthly fall in seven years. The Shanghai index fell 22.6 percent fall in January. The biggest monthly fall since October 2008. Chinese currency Yuan edged up against the US dollar on Beijing support. 

The market fall in January 2015 wiped out market capitalization to the tune of Yuan 12 trillion ($1.8 trillion). The Chinese stocks rallied on the last session of the month as Shanghai index rose 3.1 percent reducing the monthly loss to 22.6 percent, which is still the biggest monthly drop in seven years. 

The Shanghai Composite index suffered from the huge losses the most since the financial crisis in 2008, which was triggered by fall out of Lehman Brothers bank. The CSI 300 index of the largest listed companies in Shanghai and Shenzhen was up 3.2 percent. But, it recorded overall monthly loss of 21 percent indicating biggest loss since August 2009, according to Yahoo Finance

Zhang Mingyu, chairman of hedge fund house Shanghai YJ Investment Management Co, said: "Market bulls have failed to organize meaningful resistance, the 'National Team' didn't inspire investors, while speculators chose to stand on the sidelines. The market has been overwhelmed by gloom and looks like a bottomless pit."

The Chinese government's efforts to infuse fresh buying interest into financial markets and supporting the weakening currency couldn't boost invest confidence. The falling markets may result in their own momentum keeping further pressure on margins, reports Reuters.

The capital outflow has been keeping pressure on Chinese currency Yuan. The People's Bank of China (PBOC) is taking all possible measures to support its falling currency. The Chinese government devalued the currency for two times in just six months. The Chinese central bank has ensured the banking system by pumping a massive Yuan 690 billion to avoid liquidity crunch. Lunar New Year celebrations in China are set to take place in early February.

Meanwhile, Chinese Yuan marginally moved up against the US dollar as on Friday (29 January 2016). The central bank set its daily midpoints on stronger note during the week. Yuan against the US dollar recorded a marginal gain during the week. The Chinese government is in the process of controlling capital outflows to support Yuan, as reported by Yahoo News

Yuan against the US dollar in spot market opened at 6.5757 and indicating 0.1 percent gain when compared with the previous week. The Chinese central bank has set midpoint at 6.5516 before the session on Friday. It was 0.02 percent higher than previous week's 6.5528. The midpoint has been fixed by PBOC higher by the day during the week.

The Chinese market already suffered 40 percent drop in August 2015 and since then it had been moving in a narrow range taking the index to 2014 levels. The Chinese government has roped in state-run banks and other brokerage firms to support the stocks to prevent further market fall. However, the markets were not recovered in January as it was anticipated. 

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