China stocks down to 6-month low after lending data tumbles

SHANGHAI: China stocks slipped to their weakest levels in six months on Wednesday after data showed lending by the country’s banks tumbled more than expected in July, while trading volume remained thin, underscoring fragile investor sentiment.

China’s CSI 300 Index closed down 0.8%, touching the lowest level since Feburary. The Shanghai Composite Index lost 0.6%.

The weakness comes even as Asian shares advanced and the dollar nursed losses after soft U.S. producer prices data stirred hopes that consumer price inflation would be benign, sending bond yields lower.

Chinese banks extended 260 billion yuan ($36.28 billion) in new yuan loans in July, down nearly 88% from June and missing analysts’ forecasts, according to data released by the People’s Bank of China (PBOC) on Tuesday.

The lending hit a near 15-year low, dragged down by tepid credit demand and seasonal factors, raising expectations that the central bank may dole out more easing steps.

“As the PBOC highlighted the importance of counter-cyclical adjustment to support domestic demand, we maintain our forecast for a 25bp RRR cut in Q3 to facilitate increased government bond issuance and a 10bp policy rate cut in Q4 to lower funding costs for the real economy,” Goldman Sachs analysts said in a note.

China’s consumer staples sector dropped 1.05%, while the real estate index was down 0.92%.

The smaller Shenzhen index ended down 0.86% and the start-up board ChiNext Composite index was weaker by 1.422%.

Hong Kong’s Hang Seng index was down 62.52 points or 0.36% at 17,111.43. The Hang Seng China Enterprises index fell 0.41% to 6,023.45.

Around the region, MSCI’s Asia ex-Japan stock index was firmer by 0.52%, while Japan’s Nikkei index closed up 0.58%.

At 0754 GMT, the yuan was quoted at 7.1465 per U.S. dollar, 0.11% firmer than the previous close of 7.1542. – Reuters