While the global market heaved a sigh of relief last week with the U.S. risks temporarily averted, China has become a flashpoint where events could either promote global stability or push other markets into a crisis.
Fears of a cash crunch have surfaced once again in the world’s second largest economy as the central bank did not inject liquidity into the economy for the third day in a row. This has resulted in rising money market rates across the nation (read: Top Ranked Emerging Asia-Pacific ETF in Focus ).
The seven-day bond repurchase rate, a key gauge of short-term liquidity in China, jumped more than 150 bps in the past two days to nearly 5% after seeing a persistent decline since October 9 th . This marks the biggest increase since July and signals that the bank might start tightening its monetary policy in order to prevent rising property prices and growing inflation.
The latest housing data in China suggests that home prices in some major cities have climbed sharply and is a bit out of control, leading to heightened worries over a property bubble. This could aggravate the inflation rate, which is already at a seven-month high (read: Focus on These China ETFs for Outperformance ).
Market Impact
The sudden move by the People’s Bank of China to suspend weekly auctions of reverse repurchase agreements had caused jitters across the global markets. The bank generally conducts bi-weekly reverse-repurchase operations on Tuesday and Thursday to provide liquidity to the market.
As such, China ETFs saw horrendous trading yesterday, crushing stocks across the board. Below, we have highlighted three most popular ETFs that have seen rough trading and might continue to do so in the coming days (see: all the emerging Asia Pacific ETFs here ).