China stocks decline, but trim losses

March 10
3:19 AM 2016

Despite suffering from decline for a second session, China's stocks pared early losses following buying support from state-backed institutions. However, the suspected state-backed fund buying increased concerns that inflation is rising.  Investors are in wait and watch mode ahead of European Central Bank's (ECB) meeting.

Shanghai Composite index eased to 0.6 percent, trimming the early loss of 1.3 percent. Finance and energy stocks pulled the index lower, while consumer companies gained in the market. Of late, Chinese markets are witnessing a typical trading pattern -declining in morning trade and rebound in afternoon. The meetings of National People's Congress were causing volatility in the markets.

Shanghai composite is the worst performing index among 93 global indices tracked by Bloomberg. Rising consumer prices in February 2016 the most since mid -2014 are adding to inflation. Food costs also surged amid week long Lunar New Year holidays in China. Chinese securities regulator has asked mutual funds, brokerage firms and corporate firms to ensure stability in the stock markets as annual policy meetings are going on. 

Alex Wong, who oversees $100 million assets at Ample Capital Ltd, said "In the morning, people usually sell on strength or at relatively high levels. Recently people have been expecting stabilization from the national team so we usually see a pick up in the afternoon session."

Reuters further adds that the latest Chinese data interpretation gave assumption of faster inflation surge higher than forecast dampened the market sentiment. Consumer inflation rose 2.3 percent in February indicating its fastest rise since July 2014. However, manufacturing prices remain sluggish. Economists consider higher inflation in a slowing economy as a bad sign as inflation surge in a weaker economy limits the space for monetary easing, while increasing living costs.

Investors mostly started buying stocks from afternoon and held them till end of the session. This pattern resulted in an 8.3 percent return this month so far. The market fell 1.7 percent owing to selloff in morning trades. Traders were hoping on afternoon rallies in the wake of extended buying support from state-backed funds.

Concerns over metals prices are further dampening investor confidence. The consolidation of steel plants is taking place in the world's second largest economy. Chinese stocks after a six-session winning streak started declining for two sessions. Investors turned cautious and slipped into wait and watch mode ahead of European Central Bank's monetary policy meeting, according to Market watch.

Thursday's inflation data is showing declines in exports and slump in manufacturing sector. This is building up pressure on the Chinese government. There's growing demand for more stimulus for boosting economy. The Growth concerns about Chinese economy added to 20 percent drop in Shanghai composite index this year so far. 

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