Against a background of slowing global economic recovery, the policy focus in China, as in many other countries, switched to growth rather than inflation. Not all policy signals were unambiguous, however, and the most noteworthy—a decision by the People’s Bank of China (PBOC) to extend the reserve requirement ratio (RRR) to banks’ margin deposits—caused some confusion. On balance, it appeared likely to act as a not-too-onerous check on liquidity growth that was well calibrated to the growing sense of economic uncertainty.
The Asian ex-Japan market fell in tandem with global markets in June amid persistent global investor anxiety, finishing down 2.3% in US dollar terms. South and Southeastern Asian markets fared better, with the exception of Thailand, which remained fragile ahead of July’s general election.
Bucking a trend of general weakness in the broader Chinese and Asian equity markets, China A shares rose in June as worries about rampant inflation and economic slowdown eased somewhat. Having sharply lagged global markets in previous months, the A-share market, particularly cyclical companies, benefited from investors’ pent-up demand. The MSCI China A Share Index rose 2.8% in US dollar terms.
The developed Pacific markets—as measured by the MSCI Pacific ex Japan Index—declined 1.7% for the month, trimming the gain for the first half of the year to 2.5%. Sector performance was mostly negative during June.