Shanghai: Chinese shares tumbled again on Friday, with the Shanghai index closing lower than at any time since December 2014, leaving most who put their faith in Beijing's measures to end last summer's crash nursing losses.
On the currency markets the yuan weakened sharply offshore, opening up a gap of more than 1 percent with the steady onshore market, despite central bank efforts earlier in the week to squeeze out speculators.
Onshore the yuan was 0.1 per cent up on the week, but it is nearly 1.4 per cent weaker against the dollar for the year so far and has lost nearly 5 per cent since August. Both the major stock indexes shed more than 3 percent, raising questions about Beijing's ability to stop a sell-off that has now reached 18 per cent since the beginning of the year.
"The 'National Team' wants to stem the fall, but it just cannot stop the stampede, as investors are selling in panic," said Shen Weizheng, fund manager at Shanghai-based Ivy Capital. The turbulent start to 2016, with currency and stock markets tumbling, has stoked concerns that Beijing's policymakers were in danger of fumbling as the country headed toward its slowest growth in 25 years.
"The key issue is that people don't have confidence in the economy, and the yuan remains under pressure to depreciate. Beijing can no longer pump liquidity into the economy as it would cause further falls in yuan's value," said Shen, adding that the fall would lead to more margin calls for those who borrowed to buy shares and a loss in value of collateralised stocks, which would trigger further selling.
Upbeat economic figures earlier in the week on trade and investment had tempered some of the fears about the slowdown in the world's second-largest economy, but on Friday brought news that fresh lending by Chinese banks was weaker than expected in December and well down on the previous month.
China's economic growth is expected to slow to 6.5 per cent in 2016 from a forecast 6.9 percent in 2015, prompting the government to ease policy further, a poll showed.
Offshore yuan slips
After a calmer few days on the currency market, signs of stress began to re-emerge. The People's Bank of China (PBOC) has fixed the midpoint for the yuan broadly steady for more than a week, signalling a determination to hold the line against expectations of sustained depreciation.
But dealers said the yuan would resume its decline if the central bank loosened its grip, and more than 30 major market players in Europe and the United States told Reuters they would not rule out a further 15 percent depreciation this year.
The bank set the midpoint for the tightly managed currency at 6.5637 per dollar on Friday, weaker than the previous fix of 6.5616 but 253 pips stronger than Thursday's closing quote 6.5890.