Asia: China pumps $81bn into banks

Although Tokyo's Nikkei index closed down slightly, much of Asia's equity markets finished in the black after sentiment was boosted by China's central bank stepping in to boost its faltering economy.

Responding to recent weak data, a spate of upcoming initial public offerings (IPOs) and possibly also to fears of a change in bias from the US Federal Reserve, the People’s Bank of China (PBoC) injected more liquidity to its banking system, pumping $81bn into the five biggest state-owned banks.

"It’s basically money-printing along the lines of [quantitative easing] which the Chinese banks can use to make loans or purchase financial assets and boost confidence in the economy," said Jasper Lawler of CMC Markets.

Rabobank pointed out that if a central bank were to do that in Europe, many banks would probably say "thank you but no thanks".

"One explanation for the cash injection by the PBoC is the upcoming Golden Week holiday, which raises bank’s cash needs as well as planned IPO activities in the upcoming months. As such, the nature of these measures tallies with our view that whilst China’s authorities are trying to prevent too sharp an economic slowdown, they are loath to succumb to more drastic and high-profile stimulus measures for now."

Credit agency Moody’s suggested improved financial results for Chinese Property Developers in the second half of the year, although this was offset by more weak China data with the MNI Business Sentiment Indicator China up to 52.2 from previous 51.1.

Citi expects the Chinese economy to grow 7.3% this year but estimates growth coming in below the government's 7% growth target in 2015, and now predicts that the central bank will cut interest rates in coming months.

Looking over the South China Sea, a note from Blackrock's head of investment strategy said the recent strengthening of the American dollar offered another side of the coin for investors: the depreciation of other currencies. In Japan, this is causing a significant effect on local equities, a trend he expects to continue.

Analysts at Credit Suisse also cast doubt on whether the Bank of Japan's can continue its massive bond buying programme for much longer.

"Practically, this is not a policy that you can maintain for a long time. The BOJ is absorbing bills and bonds from markets so much that one day there could be no bills and bonds left to buy."