Investor Alert

Asia Markets

Dec. 26, 2014, 5:36 a.m. EST

Banks drive Shanghai Composite up 2.8%

China relaxes rule on using bank deposits to make loans

By Daniel Inman

Chinese stocks bumped higher for the second consecutive session, while the rest of Asia was subdued due to the Christmas holidays.

The Shanghai Composite (SHG:CN:SHCOMP)   rose 2.8% to 3157.60, putting the market up 1.6% since last Friday — bringing a violent week of trading in China to an end. Trading was extremely volatile throughout the week, with the index moving 2% or more every session since Tuesday. The Shenzhen Composite (SHENHZEN:CN:399106)   had a moderate day, ending up 1% at 1439.48.

Financial stocks have been at the forefront of the moves in Shanghai, with banks, brokerages and insurance companies swinging wildly throughout the week. Expectations for monetary-policy easing in China led to a surge for the sector on Monday, which subsequently came back down to earth over the following two days.

On Thursday and Friday, financial stocks once against started to swing higher on news that China is relaxing a major restraint on the ability of banks to use their deposits to make loans, by allowing lenders to include more money in their deposit bases.

The subindex that tracks financial stocks surged 5.8% on Friday. Citic Securities (SHG:CN:600030)   hit the daily upper 10% limit, Bank of Communications (SHG:CN:601328)   (OTC:BCMXY)  rose by 4% and Industrial and Commercial Bank of China (SHG:CN:601398)   (OTC:IDCBF)  was 3.2% higher.

A softening in liquidity also helped the market, as interbank rates softened over the course of the week, as cash had previously been scarce due to money locked up for a recent spate of initial public offerings.

Elsewhere in Asia, trading was quiet across the region as the holiday season kept a number of markets closed, while there was no overnight guidance from the U.S. or Europe. Markets in Hong Kong and Australia remained closed for the Christmas period.

Japan’s Nikkei Stock Average (NIKKEI:JP:NIK)   added 0.1% to 17818.96 as the market was little moved by the latest setback to Prime Minister Shinzo Abe’s campaign to end deflation, as the country’s core consumer-price index rose 0.7% in November, slowing from a 0.9% increase in the previous month.

There were only small moves on other exchanges that were open, with South Korea’s Kospi (KOREA:KR:180721)   up 0.1% to 1948.16, and Taiwan’s Taiex  0.6% higher at 9214.07.

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