Asian stocks slip as oil skids with STI down 1%, but China rallies on margin debt curbs ease

An investor looking at stock information at a brokerage house in Shanghai, China, on March 14, 2016.
An investor looking at stock information at a brokerage house in Shanghai, China, on March 14, 2016. PHOTO: REUTERS

HONG KONG (BLOOMBERG, REUTERS) - Most Asian stock markets slipped on Monday (March 21) after three consecutive weeks of gains as a retreat in oil prices made investors cautious.

BUT China's benchmark stock index rallied above the 3,000 level for the first time in two months after policy makers loosened controls on margin lending. The Shanghai Composite Index climbed 2 per cent, led by brokerages and technology companies.

China Securities Finance Corp, the state-backed agency that provides funding to brokerages for margin trading, said late ON Friday (MARCH 18) it will restart offering loans to securities firms for periods ranging from 7 days to 182 days.

A surge in margin loans fueled the stock boom in the first half of last year, and exacerbated the slump that followed. Moves in the Shanghai Composite over much of the past two years have closely tracked appetite for leveraged bets, which fell to the lowest level since December 2014 last week.

"The state doesn't want the market to decline and they want to see buying from investors so we've seen them loosen their grip on margin lending," said Wang Zheng, who has been adding his holdings recently as the Shanghai-based chief investment officer at Jingxi Investment Management Co. "There's no big negative news now as the top priority for the regulator is to stabilize the market. There will be no radical reforms."

The Shanghai Composite posted its steepest weekly gain since November amid speculation that some commercial banks had resumed non-brokerage margin lending, which was banned by regulators last summer.

The CSI 300 Index rose 2.4 per cent, while the ChiNext index of small-cap shares surged 1.7 per cent for a three-day, 13 percent gain. The Hang Seng China Enterprises Index added 0.8 perc ent in Hong Kong, taking its rebound to 19 per cent since the Feb 12 low. The Hang Seng Index climbed 0.2 per cent.

MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.3 per cent after entering positive territory for the first time this year on Friday. It is up 16 per cent from January's lows.

Equity markets elsewhere in the region edged lower with Taiwan and Australia leading losses.

Singapore's Straits Times Index was down 1.04 per cent at 2,876.58 as of 1:40 pm.

Japanese markets were closed for a holiday.

"Despite the current rally in risk, we are more inclined to be broadly bearish on emerging markets given the underlying weakening trend," said Frances Cheung, head of rates strategy, Asia ex-Japan at Societe Generale in Hong Kong.

In the absence of any fresh major economic data in a holiday-shortened week, investors were left to ponder the softer tightening bias from the Fed even as the US economic recovery appeared to be gathering fresh steam.

Dollar bulls were hit hard last week after the Fed's less hawkish stance which cut the projected rate hikes for the rest of the year by half to only two. Financial markets, as seen by money market futures, are barely pricing in one.

Fed Chair Janet Yellen sounded doubtful that a recent firming in US inflation would be sustained, suggesting the central bank is in no hurry to tighten policy.

Some such as Francis Cheung, China strategist at brokerage CLSA, said the Fed's renewed caution would encourage Beijing to pursue with its own stimulus measures to boost the economy. He expects an interest rate cut in the second quarter.

China's economy is showing signs of improvement while capital outflows from the country are moderating, top Chinese officials said on Sunday.

Easing outflows and the softer dollar are resulting in less pressure on the yuan currency, which could give the central bank more confidence to cut interest rates and banks' reserve requirements again after largely weak data in January and February, some market watchers say.

However, softer oil prices dampened sentiment.

Oil slipped for a second session, extending Friday's slide of over 1 per cent after the USrig count rose for the first time since December, renewing worries of a supply glut after an output freeze proposal had helped boost the market to 2016 highs.

US West Texas Intermediate (WTI) futures fell more than 1 per cent to US$39.01 per barrel after briefly topping US$41, its highest since last December.

Brent crude edged lower to US$41.04 per barrel after hitting this year's peak of US$42.54 per barrel.

In currencies, the dollar index was little changed at 95.01, not far from a five-month trough of 94.578 set on Friday.

The greenback fetched 111.31 yen, still within reach of Friday's 17-month low of 110.67. The euro, which last week scaled a one-month peak of US$1.1342, stood at US$1.12830.

The Australian dollar consolidated gains after hitting its highest level in nine months last week at 0.7681 per dollar. It was changing hands at 0.7591 on Monday.