For those who trade in Chinese shares, they will experience volatile market conditions as the share prices have been going up and down as the central bank has introduced a further reduction in the rate. Shanghai Composite has been down by 1.1% after the market closed which is considered the benchmark for the mainland. The trading day was marked by the rates moving in and out of negative zone.
The fall started by sixteen percent this week, which has impacted the global markets as well. The key lending rate has been reduced by 0.25 percentage by the central bank of China. This was done in order to steady the stock market that has been in turmoil from the past few days. The volatility that has come by as well as losses being seen in the Chinese market has wrecked investor confidence to a large extent in this country. US and Asia markets have also been seeing turmoil due to the volatile market conditions in China. The cut in interest rate is the fifth so far since the November month of last year.
The rate cut is usually done by the central bank in a bid to increase borrowings so that private people as well as businesses find it more lucrative to borrow money from the banks. This move is being seen as part of a long term strategy to boost the economic growth in the country, though the immediate impact on the stock market is leading to losses.
The intervention should not be seen as any way to influence the stock market, which is not the interest of the Central Bank. Instead, it is trying to impact the real economy for long term investment benefits. The bank authorities wish to calm the turmoil that is brewing regarding the fear of the Chinese economy slowing down. The bank wishes to give the signal that hard landing need not be feared as the market will stabilize over the long run as long as investor confidence is maintained.
However, as small changes bring about ripples and repercussions in the trading scenario and other markets as well, it is hard for investors and trader to stay positive. The Hang Seng index of Hong Kong stayed up following the lead from Shanghai, but it too fell flat and remained at 21,416.09 points. This might be an indication of the stock bubble bursting which has been the scene for a year now. The country is moving along a transition phase that has been a deviation from the investment influenced growth model which the government had feared would lead to adverse consequences and today trouble seems to have reared its head.