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Stocks plummet in Asia after China, Wall Street shock

Asian stocks fell sharply yesterday, hit by heavy losses in China and fears of a US economic slowdown, although a rebound in Shanghai helped to ease investor jitters, dealers said.

From Tokyo to Sydney, Hong Kong to Mumbai, share prices fell heavily on concerns over slowing economic growth in the US and possible overheating on the Chinese stock market.

"What we are seeing is the echo of the fall in the Chinese market and more importantly the fall that we saw in the US equity market overnight," said Glenn Maguire, chief economist for Asia at Societe Generale. "I don't think these moves significantly change the macroeconomic outlook for China, which remains relatively firm at this stage. I think the markets should stabilize across the rest of the region."

In Shanghai, shares staged a sharp turnaround yesterday as the government calmed jittery investors by quashing rumors about a looming capital gains tax but also reflected China's strong economic fundamentals.

The massive sell-off on Tuesday -- an 8.8 percent fall -- was blamed on rumors the government would start levying taxes on capital gains made on stock investments. Regulators quoted in the local media yesterday denied plans for the tax on stocks.

The benchmark Shanghai Composite Index, which covers A and B-shares, responded by rising 109.28 points, or 3.94 percent, to 2,881.07 on turnover of 121.4 billion yuan (US$15.6 billion).

In Tokyo the Nikkei-225 index of leading shares fell 2.85 percent.

"The selling that started in China and affected the United States naturally affected Japan. There was no way for Tokyo to avoid that," said Masayoshi Yano, senior market analyst at Tokai Tokyo Research Center.

"Is it panic? Let's just say there are many orders to sell shares and the weight on the market is very strong," he said.

"I believe selling pressure will continue," said Eugene Law (羅家健), head of research at Celestial Asia Securities in Hong Kong, noting that many investors had been unable to sell Shanghai stocks during Tuesday's turmoil.

In Sydney, shares fell more than 3 percent on opening, the biggest single-day fall in six years, and ended down 2.69 percent.

Indian share prices fell 3.25 percent. Stocks fell by 2.46 percent in Hong Kong and by 3.72 percent in Singapore, while Kuala Lumpur and Manila both saw plunges of more than 8 percent.

The Dow Jones Industrial Average dropped 3.29 percent on Tuesday after the worst day on Wall Street since 2001. At 10am yesterday, the Dow was up 0.13 percent to 12.231.86.

The main European indexes fell by between 2 percent and 3 percent on average on Tuesday.

Former Federal Reserve chairman Alan Greenspan's comments on Monday and tension about Iran's nuclear program added to investor jitters.

Greenspan said the US economy had been expanding since 2001 and that there were signs that the current cycle was coming to an end.

also see stories:
Analysis: Share sell-off highlights PRC woes: analysts
Local sell-off expected to follow PRC equity slump

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