Updates prices; adds Hong Kong performance
SHANGHAI, July 22 (Reuters) –China stocks declined on Monday, led by banking and energy shares, as President Xi Jinping’s policy blueprint underwhelmed investors, despite a surprise policy rate cut that sent bond yields lower and weakened the yuan.
There was also littleappetite for risk-taking after U.S. President Joe Biden decided to end his reelection campaign on Sunday, which investors said creates uncertainty and could roil global markets.
China’s blue-chip CSI300 Index .CSI300 fell 0.7%, snapping a seven-day winning streak, while the Shanghai Composite Index .SSEC dropped 0.6%. The yuan weakened to a one-week low against the dollar CNY=CFXS while China’s benchmark 10-year treasury yields dropped roughly 1.9 basis points (bps).
China released a policy document on Sunday, outlining ambitions that were mostly already known, from developing advanced industries to improving the business environment. The blueprint, which presents no major policy shift, followed closed-door meetings of the Communist Party’s Central Committee, led by Xi.
“Beijing’s policy mainly supports the tech sector, so financial and energy shares, which had outperformed, are falling,” said Yang Tingwu, vice general manager of asset manager Tongheng Investment. “That’s why we’re seeing this sector bifurcation.”
Financial stocks .CSIFN dipped 0.7% as Beijing’s reforms prioritised tech and manufacturing over the financial sector.
Investors also expect thinner margins for banks as China lowered a key short-term policy rate and its benchmark lending rates on Monday.
Some analysts interpreted the rate cuts as Beijing’s recognition of economic hardship and the need to support new sectors.
“If China wants to become a financial powerhouse, it must first become a giant in advanced manufacturing and technology,” said Yuan Yuwei, founder and CIO of Water Wisdom Asset Management.
However, China’stech-focused STAR Market .STAR50 and healthcare stocks .CSIHCSI bucked the trend, rising 0.4% and 0.8%, respectively,as investors bet the sectors would benefit from Beijing’s reforms.
Investors also dumped Chinese energy shares .CSIEN. An index tracking the sector slumped as much as 3.8%, led by oil giants CNOOC 600968.SS and PetroChina 601857.SS.
Huang Yan, general manager of Shanghai QiuYang Capital Co, said that energy shares are dropping as uncertainty in U.S. elections are roiling U.S. markets and impacting commodity prices.
In Hong Kong, however, the benchmark Hang Seng Index .HIS rebounded 1.3% from three-month lows.
YUAN WEAKNESS
China’s yuan CNY=CFXS fell to as low as7.2750per dollar, the weakest level since July 11, as Monday’s rate cuts further widened the yield gap with the U.S.
On Friday, China’s central bank said it would increase elasticity in the foreign exchange market.
“The higher tolerance for mild increases in RMB volatility creates room for further interest rate adjustments,” Tommy Xie, an economistat OCBC Bank, said ina note.
The latest data shows China’s demand for foreign currency remained strong in June, which “indicates mounting pressure for the RMB to weaken further,” Xie said.
Chinese bond yields fell across the board on Monday in the wake of the rate cuts.
The benchmark 10-year treasury yields CN10YT=RRfell nearly 2 bpsto 2.241% in late afternoon trade, according to trading platform Qeubee, while 30-year government bond yields dipped 1.3 bps to2.45%.
China’s central bank has repeatedly warned against bubble risks in the treasury bond market and has said it would sell bonds, if needed, to prevent yields from falling further.
Reporting by Shanghai newsroom; Editing by Stephen Coates, Sam Holmes and Sonia Cheema
