Chinese shares shot up more than 2 per cent on Thursday after the central bank eased the policy to combat an economic slowdown and ward off deflation, but profit-taking pared the gains by mid-day.
The move by the People’s Bank of China to cut reserve ratio requirements (RRR) for banks had been widely expected before the long Lunar New Year holidays in mid-February, helping fuel a stock market rally of around 40 per cent in the last few months.
The CSI300 index ended the morning session up 1.4 per cent at 3,449.57 points, after surging 2.5 per cent at the open, while the Shanghai Composite Index was up 1.0 per cent at 3,205.55 points, after opening up 2.4 per cent.
“The strong opening was expected but the subsequent retreat during morning trading indicates that investors are cautious,’’ said Li Zheming, an analyst at Datong Securities in Dalian.
“The PBOC would need to continue rolling out easing policies throughout Q1 and Q2, for example more interest rate and RRR cuts, for the stock market to react positively in the longer term.’’
Wednesday’s RRR cut was just the beginning in a series of monetary easing policies, Nomura Holdings said in a note.
Banks shares jumped 2.7 per cent and the property sub-index rose 2.0 per cent.
The NASDAQ-like ChiNext composite, which has been moving in the opposite direction to large caps, also made gains of 2.0 per cent.
In Hong Kong, the Hang Seng Index was up 0.6 per cent at 24,818.63 points, after opening 1.5 per cent higher. The Hong Kong China Enterprises Index gained 1.0 per cent to 11,889.43.
Analysts said Hong Kong shares were weighed down by profit-taking pressure given concerns over China’s slowing economy.
Linus Yip, chief strategist at First Shanghai Securities in Hong Kong, said investors would continue to trade cautiously ahead of the New Year holiday given uncertainties both at home and abroad.