MNI China Daily Summary: Monday, Aug 25

EXCLUSIVE: China’s A-share rally could further lift the Shanghai Composite and CSI 300 past decade highs, as loose liquidity, policy support and stronger risk appetite drive a broad revaluation of equity assets, advisors and analysts told MNI, noting a rising equity market will help improve consumer confidence and economic momentum.

POLICY: Shanghai has increased the maximum provident fund loan limit by 15% for home buyers purchasing newly built green buildings, a notice on the municipality’s WeChat account said.

LIQUIDITY: The PBOC conducted CNY288.4 billion via 7-day reverse repos, with the rate unchanged at 1.40%. The operation led to a net injection of CNY21.9 billion after offsetting maturities of CNY266.5 billion today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.5208% from 1.4669%, Wind Information showed. The overnight repo average decreased to 1.3495% from 1.4122%.

YUAN: The currency strengthened to 7.1517 against the dollar from 7.1805 on Friday. The PBOC set the dollar-yuan central parity rate lower at 7.1161, compared with 7.1321 set on Friday. The fixing was estimated at 7.1527 by Bloomberg survey today.

BONDS: The yield on 10-year China Government Bonds was last at 1.7640%, down from the previous close of 1.7778%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index gained 1.51% to 3,883,56 while the CSI300 index increased 2.08% to 4,469.22. The Hang Seng Index edged up 1.94% to 25,829.91.

FROM THE PRESS: The A-share market is expected to move towards a more sustainable "slow bull" pattern amid industrial upgrading, emerging technological breakthroughs, improved capital market systems and further retail participation against the backdrop of declining risk-free rates, China Fund News reported citing analysts. In the short term, with the indexes breaking through key resistance levels, the performance of the capital market has clearly outpaced the fundamentals, and investors need to be wary of fluctuations caused by trading congestion and uncertainty in the effectiveness of policy implementation, analysts said.

The National Development and Reform Commission will expedite the establishment of new policy-based financial instruments to fund emerging industries and infrastructure projects, with local governments actively preparing projects, Shanghai Securities News reported. It is estimated that the scale of the new tool will be CNY500 billion, which can leverage CNY1.5-2.5 trillion in infrastructure investment and help lift its growth rate to 6.0% this year from the 3.2% in the first seven months, the newspaper said citing an unnamed expert.

Local governments are extending the duration of their guidance funds to more than 15 years to support technology innovation firms better, China Securities Journal reported. Anhui province said well-performing mother funds may be extended to 20 years with approval, while Shanxi capped mother funds at 20 years and sub-funds at 15. The moves follow a State Council statement earlier this year urging local authorities to raise their risk tolerance in start-up investment by boosting government investment ratios, easing duration limits and lengthening performance evaluation cycles, the paper said.