Asia: Equities flatter after China's liquidity injection

Fresh from spreading panic across global markets the previous day, stocks in Asia finished flatter on Tuesday though conditions were still choppy.

China's Shanghai composite closed down 0.26% and its Shenzhen brethren was 1.87% lower, after Monday's session was curtailed early after a 7% fall set off the new circuit-breaker mechanism.

Japan’s Nikkei, down 0.42%, was still being held back by a strong yen, which is oscillating near two-month highs. Australia’s ASX was down 1.6% as miners led the declines as they had in the northern hemisphere the previous day.

Helping market sentiment across the region were moves to calm markets by the People’s Bank of China.

The central bank on Tuesday injected 130 billion yuan (£13.6bn) into the financial system via reverse repurchase agreements and fixed the yuan stronger to the dollar in reaction to the currency hitting four-and-a-half month lows.

"The PBOC’s offer of 130bn yuan (almost $20bn) of reverse repurchase agreements appears to have eased liquidity concerns in Chinese money markets and offered some layer of comfort for equity investors," said Jasper Lawler at CMC Markets. "With rising capital outflows thanks to the weakening currency, tight liquidity has forced the PBOC to offer alternative funding."

Furthermore, several large Chinese companies said their major shareholders and senior executives would voluntarily extend a ban on sales of shares in the secondary market, Reuters reported.

Although China's disappointing manufacturing PMI data was held up as one reason for Monday's scares, many commentators said worries about Friday's expiration of a six-month ban on selling for large investors played a larger part in Monday’s plunge.

The ending of the ban on 8 January could unlock what is calculated to be around 1.24trn yuan of shares.

China's securities watchdog, the CSRC, confirmed on Tuesday that it was mulling new rules to regulate share sales by major shareholders and senior executives, Reuters added.

Craig Erlam, analyst at Oanda, added that the implementation of the new circuit breaker probably exacerbated the problem by prompting more anxiety among investors, with the large retail presence, as seen last August, "more likely to jump on board rather than ride it out and remain calm".

"We’ve seen on numerous occasions before how quickly things can turn sour in China and given the fragility that will still be present after Monday’s rout, I would not be surprised to see the circuit breaker triggered again. This could prompt another negative day in Europe and add to the gloomy start to 2016."