China stocks return to positive in volatile trade after PBOC rate cut

Chinese stocks moved higher by mid-morning on Monday in volatile conditions as an interest rate cut by the central bank failed to impress investors who are becoming increasingly worried that the recent rally has been overdone.

Money rates eased to a four-year low while the yuan CNY=CFXS steadied after the People's Bank of China said on Sunday it was lowering its benchmark one-year lending and deposit rates by 25 basis points, the third cut in six months, to help support an economy headed for its slowest growth in a quarter of a century.

As of 0245 GMT (10.45 p.m. EDT), the CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen was up 0.7 percent, while the Shanghai Composite Index .SSEC rose 1 percent.

"The timing of the rate cut is well within expectations while the depth of the cut is smaller than many had expected,” said Zhang Chen, analyst at Shanghai-based hedge fund manager Hongyi Investment.
"The market is in a consolidation period, and I don’t think the rate cut could change that pattern."

He added that the increase in supply from initial public offerings was also weighing on the market.

The SSEC index posted its biggest weekly decline in nearly five years last week, triggered by signs of tighter regulatory scrutiny over margin lending, which has helped fuel a near doubling in China's stock market over the past year despite a flagging economy.

A rate cut had been widely expected by the market after economic growth in the first quarter cooled to 7 percent, a level not seen since the depths of the 2008/09 global financial crisis.

In an attempt to energize the economy, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.