SHANGHAI — Shanghai’s Composite Index ended the day 1.3 percent lower on Wednesday, a steadier performance after two days of sharp falls.
Echoing the dour mood, stock markets in Hong Kong and Europe again dipped into negative territory.
The dip in Shanghai came in spite of a People’s Bank of China (PBOC) announcement late Tuesday of a cut in interest rates, setting the one-year benchmark lending rate 0.25 points lower, to 4.6 percent. The country’s central bank also lessened the amount of reserves that banks must hold.
According to PBOC, the double-barreled policy move is designed to “maintain reasonably adequate liquidity in the banking system, (and) guide steady moderate growth of money and credit.”
The cut had been expected over the weekend, and its failure to appear precipitated drastic stock selloffs on Monday and Tuesday.
“One questions why they didn’t ease over the weekend,” Chris Weston, chief market strategist for IG, wrote in a research note. “Most understand this easing for what it is: a policy move aimed at counteracting the tightening of financial conditions caused by sizeable capital outflows. This is not going to boost growth.”
In fact, the announcement didn’t have much of an impact at all in early trading, with the Shanghai markets continuing to fall in the morning, before rebounding briefly back above the psychologically important 3000 mark after lunch.
Meanwhile in Hong Kong, the Hang Seng Index reversed Tuesday’s modest gains by shedding 1.5 percent. Most retail stocks were impacted with some of the biggest fallers of the day Li and Fung, down 4.4 percent to 4.97 Hong Kong dollars; and Chow Tai Fook Jewellery Group, 3.3 percent to 6.76 Hong Kong dollars.
Prada SpA shed 0.9 percent to end the day at 32.10 Hong Kong dollars.
Fears that continued volatility, on top of an earlier devaluation of the yuan, will affect the number of mainland tourists visiting Hong Kong may not be confirmed until next year, according to luxury goods analyst Deborah Aitken at Bloomberg Intelligence.
“Vacations for leisure are often planned six months plus in advance, so the true effects may not be felt until 2016,” she said.
Hong Kong, long a destination for Mainland Chinese luxury shoppers, has been been struggling with a structural decline of the high-end retail market. Large luxury players like Burberry, Kering and Chow Tai Fook have told investors in recent months that they would ask for lower rents in the city to offset lackluster sales.
After gaining ground Tuesday, Europe’s stock markets were all down again Wednesday morning.
The FTSE MIB in Milan fell 1.7 percent to 21,286.74, followed by the CAC 40 in Paris and the DAX in Frankfurt, which both lost 1.3 percent, to 4,506.58 and to 9,995.49 respectively. The FTSE 100 in London was down 1.2 percent to 6,011.43.
Investors are said to still be concerned over slowing growth in China. The Nikkei 225 in Tokyo was the exception, closing up 3.2 percent to 18,376.83.
In Europe, fashion, luxury and retail stocks were largely down. The fallers included L’Oréal, 2.1 percent to 149.55 euros; Safilo Group, 2.3 percent to 10.45 euros; Hennes & Mauritz, 2.8 percent to 324.70 Swedish kronor; and Unilever, 2.2 percent to 34.73 euros.
The few risers numbered MySale Group, 2 percent to 0.51 pounds; Italia Independent, 0.7 percent to 28.30 euros; and Brunello Cucinelli, 0.3 percent to 16.47 euros.
At 11:08 a.m. CET, the pound traded for $1.57, while the euro changed hands for $1.15 and the Swedish krona for $0.12.
Generally accepted wisdom states that China’s leaders need to shift the economy to consumer-led growth, rather than a reliance on exports. But recent policy announcements – including devaluing the yuan by almost 2 percent and moves to support the ailing stock market – have done little to stimulate either.
Consumer confidence in China is weathering one storm after another, with falls in the stock market, a sluggish property market and local government debt all fanning uncertainty.
According to China’s National Bureau of Statistics, consumer confidence in China decreased to 104.48 in July from 105.54 in June. The index had hit its highest point in 12 months last May, before the stock market began its sharp decline.
Observers argued it’s unlikely consumption or exports will be greatly assisted by the rate cut.
“You can’t stimulate consumption via interest rate cuts. At least not in Asia anyway,” Lim Say Boon, DBS’s chief investment officer, wrote in a note. ”Also, you don’t stimulate net exports through interest rates.”