US recovery, China's liquidity woes could accelerate foreign selling

In its research note, the house said that overall, the financial problems in China following sharp growth in the past years might slow the country's GDP growth even below the International Monetary Fund’s prediction of 7.75 per cent, as reflected in the purchasing managers’ index. The 7.75 pe cent rate was lower than the previous year and considered to be at the lowest level in nine months. 

"This might be another factor that accelerates foreign selling in Asian stock markets," it said.

In the US, weekly initial jobless claims, ending June 15, increased from the previous week by 18,000 to 354,000 claims, compared with the 340,000 that were predicted. This made the four-week average 348,250 claims, compared with the forecast of 345,750. 

However, May non-farm payrolls in the United States still rose by 175,000 positions, continually strengthening the housing market, which is likely to rise continually throughout the year.

May second-hand house sales rose by 4.2 per cent month on month to 5.18 million units, the highest in three and a half years, while second-hand house prices increased 15.4 per cent year on year to US$208,000 (Bt6.48 million), the highest level since 2005.

At the same time, the leading US economic indicator in May increased by 0.1 per cent to 95.2, lower than analysts’ predicted growth of 0.2 per cent but still considered to be a positive improvement, urging the Federal Reserve to deactivate quantitative easing in the third quarter of this year.

China, meanwhile, is facing massive illiquidity due to capital outflow. 

Foreign investors are concerned about China’s economic-growth rate, as the government aims for sustainable rather than short-term growth. 

China has restructured local financial institutions to control the risk involved with loan issuance after commercial bank sectors have expanded lending rapidly for many years.

Lending has grown by 22 per cent this year, compared with 20 per cent last year, causing China’s ratio of loans to gross domestic product to increase to 198 per cent, compared with 125 per cent in 2012. 

China’s central bank has slowed money injection into the system, making short-term yields or interest rates in the Chinese money market fluctuate severely for many weeks. 

Aside from pressing banks’ short-term lending, this has had a chain effect on small and medium-sized enterprises dependent on short-term loans, and on private-sector operators such as steel and cement businesses that have expanded their investment in advance.