Market digests rate hike, feeling pressure near critical frontier
Updated: 2007-08-22 16:55
In the meantime, this new round of growth led by the blue-chip heavyweights has brought mutual funds, usually pursuing steady but slower growth from large-cap stocks, enormous profits. All Chinese open-end fund categories recorded gains in July, according to the latest Lipper fund research.
Effective today, the interest rate on bank deposits is raised by 27 basis points, and the lending rate by 18 basis points, the People's Bank of China (PBOC) said. After the hikes, the benchmark one-year deposit rate is 3.6 percent while the one-year lending rate is 7.02 percent. The demand deposit interest rate remains unchanged at 0.81 percent.
The central bank said the move is supposed to "control money supply and credit, and stabilize inflation expectation." The annual growth in the broad measure of money supply, M2, grew by 18.5 percent in July, 1.42 percentage points higher than in June and the fastest yet this year. The annual growth in the consumer price index surged to 5.6 percent in July, the highest in a decade.
On the other hand, the country's major outlet for diverting the excessive capital in the domestic market to overseas markets is blocked. The global capital markets, shaken up by US subprime mortgage woes, are dampening China's demand for overseas investment through qualified domestic institutional investor (QDII) products.
Analysts said that nearly all QDII products that invest in overseas shares managed by various qualified institutions have suffered losses because of the worldwide stock market slump. This has dealt a heavy blow to investors. But there are those who hold the view that the past week's share price slide has provided an opportunity for QDII funds to buy low.
Nevertheless, the poor performance of QDII stock funds has generally made it more difficult for the managing institutions to attract new investments, at least for the time being. The prospect of further renminbi appreciation has made QDII funds look even less attractive.
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