MNI China Daily Summary: Wednesday, January 31

EXCLUSIVE: Authorities should provide more pro-growth policies, limit IPOs to rebalance supply and demand, and encourage more long-term funds to revive confidence in China’s stock market, policy advisors and market analysts told MNI.

DATA: China's manufacturing Purchasing Managers' Index rose by 0.2 points to 49.2 in January, remaining in the contractionary zone below the breakeven 50 mark for the fourth month, but ending three consecutive months of decline, data from the National Bureau of Statistics showed.

LIQUIDITY: China’s January interbank liquidity index reached its highest since December 2022 following the People's Bank of China (PBOC)’s reserve requirement ratio cut and medium-term lending facility injections, with traders’ expectations for further easing at the highest since March 2020 given weak data, the MNI China Liquidity Index showed. The MNI China Liquidity Condition Index fell to 34.1 this month, a 14-month-low after the PBOC injected CNY216 billion using its MLF facility and cut the RRR rate by 50-basis-points following a drop in q/q growth in Q4.

LIQUIDITY: The PBOC conducted CNY544 billion via 7-day reverse repo, with the rates unchanged at 1.80%. The reverse repo operation has led to a net injection of CNY81 billion reverse repos after offsetting CNY463 billion maturity today, according to Wind Information.

RATES: The seven-day weighted average interbank repo rate for depository institutions (DR007) decreased to 1.8706% from the close of 1.9385% on Tuesday, Wind Information showed. The overnight repo average rose to 1.7049% from 1.6155%.

YUAN: The currency weakened to 7.1795 against the dollar from 7.1773 on Tuesday. The PBOC set the dollar-yuan central parity rate lower at 7.1039, compared with 7.1055 set on Tuesday. The fixing was estimated at 7.1729 by Bloomberg survey today.

BONDS: The yield on the 10-year China Government Bond was last at 2.4725%, up from Tuesday's close of 2.4475%, according to chinamoney.com.cn.

STOCKS: The Shanghai Composite Index lost 1.48% to 2,788.55, while the CSI300 index fell 0.91% to 3,215.35. The Hang Seng Index tumbled 1.39% to 15,485.07.

FROM THE PRESS: Chinese high-tech firms must make R&D investment to "leap-frog" development and catch up with world class standards, according to Premier Li Qiang. Speaking on a tour of advanced industries in Shaanxi province, Li called for deeper integration between industry, academia and research, noting firms should enhance digital intelligence and green technology to create new competitive advantages. Li visited firms including Xi'an Aisheng Technology Group, Xianyang Caihong Co, Xi'an Yisiwei and Xi'an Jiaotong University.

Onshore and offshore investors continue to increase holdings of China Government Bonds amid rising expectations for loosening monetary policy, 21st Century Business Herald reported citing market insiders. A possible interest rate cut by the People’s Bank of China in February has fuelled the market’s enthusiasm for 10-year CGBs, which has also attracted investors concerned about fluctuations in the stock market during the Spring Festival. A large influx of funds has pushed up bond prices with the 10-year treasury yield hitting its lowest level since June 2002 at 2.455% on Tuesday. There may be limited room for further price increases with the yield falling below 2.5%, said a head of a private equity firm.

Authorities in Hong Kong and the Mainland are considering accelerating the process for listing approval on the Hong Kong Stock Exchange, according to Paul Chan, Hong Kong's financial secretary. Chan, speaking at the HK Capital Market Forum, added discussions included adding an RMB desk for southbound stock trading. Going forwards, Chan emphasised funds will flow both ways and Hong Kong must make use of its unique advantages.