Chinese stock markets at a 13-month low

The Chinese stock markets have fallen to a 13-month low, as investors fear that capital outflows will be increasingly bigger as the economy slows down. The decline was steeper in the last hour of trading.

One of the factors that influenced the stock markets in China was also the decline of oil prices, and investor cautiousness before the monetary policy reunion of the US Federal Reserve, which began yesterday.

The Shanghai Composite index of the Shanghai exchange fell 6.4% on January 26th, to 2,749.78 points (its lowest level since December 2014), and the Shenzhen Composite of the Shenzhen Exchange - fell 7.1%, to 1,714.43. The CSI 300 index, which tracks the evolution of stocks in the Shanghai and Shenzhen exchanges, fell 6%, to 2,940.51 points.

All industry groups followed a downward trend, from commodities producers, to technology makers.

Investors are worried that liquidity on the Chinese market will not be enough before the Lunar New Year, which begins on February 8th.

"Capital outflows and the demand for liquidity before the Lunar New Year could pressure the stock market, despite the massive injection conducted by the central bank recently", Huang Cendong, analyst with "Sinolink Securities" Co. of Shanghai recently told Bloomberg.

The Central Bank of China (PBOC) has announced that it has injected another 440 billion yuan (67 billion dollars) into the financial system, the highest level in the last three years. The PBOC has announced that it has offered commercial banks loans in the form of "reverse repo" deals. Yesterday's operation was the biggest open-market operation that the Chinese central bank has conducted since February 2013.

Jonathan Ravelas, an analyst with "BDO Unibank" Inc. of Manila, thinks: "The disappointing data in China has created even more uncertainty and has increased risk aversion on the currency and stock markets in emerging countries. Also, most investors have doubts that the Chinese financial markets will stabilize soon. Considering the volatility of the financial markets, it is best to sit on the sidelines, and keep your cash".

We remind that China has cut its reserves to reduce the volatility of the yuan. China's reserves have decreased 513 billion dollars in 2015, to 3,330 billion dollars. This decrease happened for the first time since 1992. For the current year, Bloomberg News analysts predict the drop of the reserves to 3,000 billion dollars.