China bulls powered Shanghai’s CSI300 1.9% higher overnight, despite signs of a potential liquidity crack down, and despite the Nikkei and Hang Seng falling.
Just over a day ago, the China Banking Regulatory Commission sent draft letters to banks with requirements to tighten capital requirments. If enacted, this would mean less capacity for loan growth, and bad news for a stock market supported by liquidity.
Bloomberg: Banks may need to rein in lending or sell shares to lift capital adequacy ratios to the 12 per cent minimum. Chinese stocks briefly entered a so-called bear market this week on concern the government would stymie new loans that exceeded $1 trillion in the first half.
If the market fell on tightening fears earlier, why the rally now as these fears become the most likely scenario? It’s hard to say. What’s clear is that government attempts to jawbone the market have little, if any, effect.
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