China’s credit-tightening moves continue to reverberate around the Asian region and further afield, despite some analysts’ views that the “China reaction” story is — well, an overreaction.
But “overreaction” is a hard word to say in Japanese.
This note from RBS Securities Japan on Tuesday sums up a widely-held view in Tokyo that responses to recent Japan-centric events, like the Bank of Japan’s monetary policy meeting and S&P’s switch to a negative outlook for the country, have been somewhat overshadowed by concerns about China:
JGBs REACT MORE TO CHINA THAN BoJ
Markets: Futures added 30 sen to 139.38. JGB market reversed its course in the afternoon primarily on sudden selloff in the Nikkei (-187ppts, or-1.8%) which was likely driven by further China credit tightening worries. The market traded very quietly in the morning, awaiting the BoJ MPM [monetary policy meeting]. However, the BoJ had limited impact. Instead, all attention was directed to weak equities…
And speaking of Japanese equities, this is from Reuters on Wednesday:
The benchmark Nikkei fell 73.20 points to 10,252.08, its lowest close since December 21. It fell 1.8 per cent the previous day, hurt as the yen rose broadly after China implemented a previously ordered increase in reserve requirements for some banks.
But some analysts take a very different view.
For example, a recent post on FT Alphaville about “China reaction overreaction” featured comments by Monument Securities’ Marc Ostwald on how the a small 4bps rise in the Chinese 3-month Bill rate to 1.36 per cent produced a much stronger reaction in offshore markets than onshore Chinese markets.
Ultimately, Ostwald says, this serves as a reminder that the “tail will not wag the dog in terms of PBoC rate policy, and therefore noisy Anglo Saxon market over reaction needs to be treated with care”.
Still, as Bloomberg reports on Wednesday, some big Chinese banks are moving firmly and speedily to halt lending — even as Reuters reports that ICBC, China’s biggest bank, confirmed on Wednesday that it would not halt new lending for now.
The big fear, though, as John Authers notes in Wednesday’s Short View column, is that the Chinese — not regional markets and investors — will overreact.
Given last year’s growth in Chinese bank loans, which roughly doubled, worries about a credit bubble seem reasonable — and credit-tightening measures would appear a good idea.
But if the Chinese do overreact amid growing bubble-phobia, they could inadvertently engineer a recession. And in light of Auther’s assertion that the “axis of worry” is now shifting to Asia, that would be all the region needs right now.
Related links:
Time for the tin hat? - FT Alphaville
That extra 8.20 (+50bps) in China – FT Alphaville
China seeks to curtail bank-lending binge – FT
China’s targeted lending policy - Money-supply
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