China Triple Whammy

Friday, May 18, 2007 | 08:21 AM

Concerned about rampant speculation, China acted today to let some air out of the rapidly inflating equity bubble:

• China will raise benchmark deposit and lending rates (effecitve Saturday) in an attempt to control rapid credit and investment growth

• The one-year yuan lending rate will be increased by 18 basis points to 6.57% from 6.39%. The one-year yuan deposit rate will be increased by 0.27% to 3.06% from 2.79%.

• China's central bank said it will raise banks' reserve requirement ratio by half a percentage point, effective June 5.

• China will also widen the trading band of the yuan against the dollar to 0.5% above and below its central parity rate, effective Monday.

One would expect these events to be be felt in the coming weeks, especially in the Asian bourse. In the U.S., "expiration related noise" may be muting the impact this morning, said Peter Boockvar of Miller Tabak.

Why are Chinese Central Bankers so concerned with the public rushing headlong into their own stock bubble?

• Their indices are now up 55% year to date, and have tripled in a relatively short period of time.

• The P/E of the Chinese stock markets are now over 50.

• New trading accounts are opening by the 1/4 million each day. The number of brokerage accounts set up to buy mainland shares and mutual funds amounted to 327,019 [Wednesday]. Investors opened a record 385,121 new accounts on May 8.


There is a short WSJ piece on the official PBOC release here: China to Widen Yuan Trading Band,
Increase Deposit and Lending Rates

Friday, May 18, 2007 | 08:21 AM | Permalink | Comments (24) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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George Bernard Shaw correctly observed "What we learn from history is that man never learns anything from history."

Posted by: Barry Ritholtz | May 18, 2007 8:29:55 AM

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