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Chinese shares suffer further falls Global markets steady despite further falls in Chinese shares
(about 9 hours later)
Chinese shares slumped further on Tuesday before mounting a partial recovery as Beijing battled to calm the stock market turmoil that has returned to haunt the world’s second-largest economy. Global markets have steadied despite a second successive day of declines in Chinese shares, as Beijing battled to rein in the stock market turmoil that has returned to haunt the world’s second-largest economy.
Following Monday’s rout – when the stock exchange suffered its biggest one-day collapse since 2007 – the Shanghai Composite Index initially fell more than 4% before rebounding and closing nearly 1.7% down at 3,663.82 However, the sharp moves in China, coupled with bets on the first US interest rate hike since the financial crash, continued on Tuesday to send shockwaves through emerging markets – where currencies in particular came under pressure.
The Shenzhen index closed down 2.24% at 2,111.70, after a similarly volatile day. But in Europe worries about China appeared to abate, allowing stock markets to halt a five-day losing streak. The FTSE 100 index in London closed up 0.8% at 6,555.28 points, while the pan-European FTSEurofirst 300 rose 1%. On Wall Street, stock markets also rebounded in early trading thanks to signs that China’s share slide had eased off.
On Tuesday the Shanghai Composite index initially fell more than 4% before rebounding and closing nearly 1.7% down at 3,663.82. It was another day of declines and followed Monday’s rout, when the index had its biggest one-day collapse since 2007, with a fall of 8.5%.
The smaller Shenzhen index closed down 2.24% at 2,111.70, after a similarly volatile day, having plummeted by more than 7% on Monday.
Related: Shanghai investors keep calm amid the stock market stormRelated: Shanghai investors keep calm amid the stock market storm
The previous day both indices plummeted – amid fears over China’s economy and doubts about Beijing’s continuing commitment to propping up the stock market – with the Shanghai Composite down 8.5% and the Shenzhen nearly 7.6%.
Bernard Aw, a market analyst from IG, said: “Things don’t look that bad today but we need to see a few more sessions to gauge whether the sharp decline of [Monday] has reached a bottom. [Wednesday] might show a clearer picture.” Bernard Aw, a market analyst at spreadbetting firm IG, said: “Things don’t look that bad today but we need to see a few more sessions to gauge whether the sharp decline of [Monday] has reached a bottom. [Wednesday] might show a clearer picture.”
Ahead of the markets opening on Tuesday, Beijing vowed to press on with efforts to tame China’s volatile stock market and prevent further panic. China’s latest stock market upset has added to wider concerns about the state of the Chinese economy and helped send the prices of commodities such as oil and copper tumbling. Prices for copper, of which China is the world’s biggest consumer, fell to a six-year low on Monday. However, it staged a slight revival on Tuesday, with benchmark copper on the London Metal Exchange rising 2.2% to close at $5,300 a tonne .
Gold also edged up but was not far off five-and-a-half-year lows hit last week in heavy selling as investors moved out of the precious metal. While viewed as a safe asset in uncertain times, gold does not pay interest or a dividend and so is losing its shine as expectations of a interest rate hike in the US intensify.
Analysts pointed to the volatility in China, the world’s top energy consumer, for oil’s tumble to six-month lows early on Tuesday. Brent crude prices managed to rebound later on but were still below $54 a barrel, having halved in price over the last year.
Among emerging-market currencies, Malaysia’s ringgit and Thailand’s baht both hovered around multi-year lows against the dollar as the hot money that poured into developing economies during the years of ultra-loose US monetary policy began to flow back out.
Market experts see no let-up in the selling pressure on emerging-market assets, with currencies particularly vulnerable.
“Emerging currencies have been in a bear market since 2013 and prospects for a sustained recovery look poor. With emerging-market growth slipping to its weakest level since 2009, foreign capital inflows have been dwindling. Meanwhile, China’s slowdown is contributing to slow world trade growth and continued downward pressure on commodity prices, hitting emerging markets’ terms of trade,” said Adam Slater at the consultancy Oxford Economics.
Before the markets opening on Tuesday, Beijing vowed to press on with efforts to tame China’s volatile stock market and prevent further panic.
A state-controlled stock-buying agency would “continue to buy stocks to stabilise the market”, said Zhang Xiaojun, at China’s securities regulator, the CSRC.A state-controlled stock-buying agency would “continue to buy stocks to stabilise the market”, said Zhang Xiaojun, at China’s securities regulator, the CSRC.
Related: Stock market advice for China: when in a hole, stop diggingRelated: Stock market advice for China: when in a hole, stop digging
An editorial in the Shanghai Securities Daily, a state-run newspaper, said: “In the future the market will not fall off a cliff. The government will not allow such a situation to happen again.” An editorial in the Shanghai Securities Daily, a state-run newspaper, said: “In the future, the market will not fall off a cliff. The government will not allow such a situation to happen again.”
Beijing’s interventions appeared to have prevented a repeat sell-off on Tuesday with the country’s two main indexes staging partial recoveries after their initial slides. Beijing’s interventions appeared to have prevented a repeat sell-off on Tuesday. Patrick Chovanec, chief strategist at Silvercrest Asset Management in New York, said: “They have chosen this narrative of: ‘We are going to beat the market. We are going to essentially triumph over market forces.’”
“You are seeing all these government state funds coming in to buy the blue chip companies, that will help to support the overall index,” said Aw. But, he said, that strategy carried serious risks for China’s Communist party leaders. “Rule number one is: you don’t want to promise the unachievable. The answer is: let the market find its level – I don’t see why they didn’t do that in the first place. In 2007, the market collapsed by 70% and it didn’t derail the Chinese economy.”
Patrick Chovanec, chief strategist at Silvercrest Asset Management in New York, said: “They have chosen this narrative of: ‘We are going to beat the market. We are going to essentially triumph over market forces.’”
However, he said, that strategy carried serious risks for China’s Communist party leaders.
“Rule number one is: you don’t want to promise the unachievable,” Chovanec said. “The answer is: let the market find its level – I don’t see why they didn’t do that in the first place. In 2007 the market collapsed by 70% and it didn’t derail the Chinese economy.”
Ric Spooner, chief market analyst for CMC Markets, said Monday’s rout appeared to have been caused by Beijing withdrawing the support it had been pumping into the stock market after June’s collapse saw $3tn (£1.9tn) wiped off the value of listed companies.
Related: China stock market hit by biggest one-day fall since 2007Related: China stock market hit by biggest one-day fall since 2007
Ric Spooner, chief market analyst for CMC Markets, said Monday’s rout appeared to have been caused by Beijing withdrawing the support it had been pumping into the stock market after June’s collapse in which $3tn (£1.9tn) was wiped off the value of listed companies.
That move was likely to have been executed “either to test the waters to see whether the market could withstand their absence or potentially even to try and scale back on things”, Spooner said. “It appears that that didn’t work.”That move was likely to have been executed “either to test the waters to see whether the market could withstand their absence or potentially even to try and scale back on things”, Spooner said. “It appears that that didn’t work.”
China’s latest stock market upset has fuelled wider concerns over the state of the country’s economy and sent the prices of commodities such as oil and copper tumbling. Prices for copper, of which China is the world’s biggest consumer, fell to a six-year low on Monday. However, it staged a slight revival on Tuesday morning, with the three-month copper price on the London Metal Exchange climbing 0.6% to $5,220 a tonne in early trading.
Beijing has taken unprecedented steps to stave off the threat of a more severe stock market collapse in recent weeks including freezing flotations and using a state-run “stabilisation fund” to pump billions of dollars into the market.Beijing has taken unprecedented steps to stave off the threat of a more severe stock market collapse in recent weeks including freezing flotations and using a state-run “stabilisation fund” to pump billions of dollars into the market.
But analysts warn that while such interventions might work in the short-term, in the longer term they would fail. But analysts warn that while such interventions might work in the short term, in the longer term they would fail. “To some extent these ‘circuit breaker’ initiatives can actually make these things a bit worse since they make things opaque, they mean that people become nervous,” said Spooner.
“To some extent these ‘circuit breaker’ initiatives can actually make these things a bit worse since they make things opaque, they mean that people become nervous,” said Spooner.
“The very fact that the authorities are acting to do things to shore the market up creates a nervousness and it is difficult for people to know where the real value is.”“The very fact that the authorities are acting to do things to shore the market up creates a nervousness and it is difficult for people to know where the real value is.”
Chovanec said: “The chronic issue in China is that they want a correction without having a correction. They know that the market is out of whack. They know that a correction is necessary. They know that it is unhealthy not to have a correction. But they can’t stomach the idea of actually having a real correction. Chovanec said: “The chronic issue in China is that they want a correction without having a correction. They know that the market is out of whack. They know that a correction is necessary. They know that it is unhealthy not to have a correction. But they can’t stomach the idea of actually having a real correction.”
“And then, of course, the correction becomes that much more severe when it happens because it has been prevented from happening all along.”
Rajiv Biswas, chief Asia economist for consultancy firm IHS Global Insight, said: “Some sort of correction had to happen and is happening and there is probably not a lot they can do to prevent a significant further drop.
“There are a lot of different parts of the economy that are showing weakness and the collapse of the stock market is just another symptom of the fragility of the Chinese economy right now.”
Additional research by Luna LinAdditional research by Luna Lin