China Stocks Rally After Report on Easing of Loan-Deposit Ratio Rules

Shanghai: Chinese stock markets rallied sharply on Thursday led by financials after reports circulated that the central bank is moving to further ease liquidity conditions inside banks.

China Business News reported on Wednesday that the PBOC is planning to include interbank lending by non-bank financial institutions as part of the calculated deposit base, which will expand the base for calculating loan-to-deposit ratios.

It quoted unnamed insider sources who attended a meeting with the central bank, at which 24 major financial institutions were told that even if interbank assets are included in the base, they may not need to set aside additional reserves, leaving more liquidity available for lending and investment.

"The central bank setting a zero deposit reserve for non-banking financial institutions is a positive development for financials, particularly banking shares. Also, funds locked up by IPOs have gotten unfrozen since yesterday, largely improving capital conditions in the market," said Du Changchun, analyst at Northeast Securities in Shanghai.

The China Business News report was circulated widely online on Thursday morning and financial stocks began a sharp rally when trading opened, helping to pull the CSI300 index up 2.6 per cent to 3,315.57 points as of the end of the morning session, while the Shanghai Composite Index gained 2.4 per cent to 3,043.50 points.

China CSI300 stock index futures for January rose 2.6 per cent to 3,332, or 16.43 points above the current value of the underlying index.

The money markets were not significantly moved by the report, however, with the weighted average of the benchmark seven-day bond repurchase agreement dropping slightly to 4.8762 per cent as of midday.

Hong Kong markets are closed on Thursday and Friday for the Christmas holiday, and will reopen for trade on December 29.

Copyright: Thomson Reuters 2014