Interest rate cut fails to revive investor sentiment

Chinese stocks sank by 4.55% on Wednesday – the biggest loss in five weeks – despite Beijing announcing a further cut in interest rates, the South China Morning Post reported. The Shanghai Composite Index (SCI) closed at 1,897.225 points, its lowest since December 2. The index gained over 17% between October 28 and December 19 as the government announced a series of measures designed to stimulate the economy and boost investor sentiment. Analysts said the interest rate cut was merely in line with expectations and the drop indicated further concerns about the market outlook. They warned that the stimulus measures do not address fundamental problems, adding that investors are wary of a long-lasting deflation spiral. Despite expectations of an economic rebound in the second half of 2009, millions of formerly non-tradable shares are due to come onto the market and this is expected to drain liquidity. Hong Kong’s Hang Seng Index closed down 2.75% at 14,220.79.