Chinese shares yesterday plunged more than 6 percent to 14-month lows after global crude oil prices dropped again, reviving concerns about global growth and prompting a sell-off in the world’s equity markets.
The benchmark Shanghai Composite Index ended down 6.4 percent after a late selling frenzy at 2,749.79 points, its lowest close since Dec. 1, 2014.
The CSI300 Index of the largest listed companies in Shanghai and Shenzhen dropped 6 percent to 2,940.51, also its lowest since the beginning of December 2014.
Photo: Reuters
After a rebound on Friday last week and early on Monday, crude prices fell back to below US$30 per barrel, not far from last week’s 12-year lows, ending a couple of days of gains for Wall Street stocks.
China’s fickle stock markets have now slumped about 22 percent so far this year on concerns about the slowing economy and confusion over the central bank’s foreign-exchange policy.
Many investors have lost the stomach for the market after a wild ride since summer last year, when shares crashed 40 percent. Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in would have lost their shirt again this month.
“We’ve seen another stampede driven by panic,” Kaiyuan Securities analyst Yang Hai said.
“There’s no good news in sight while investors are being affected by the global ‘risk-off’ mood,” he said, adding that the slump has triggered a lot of forced liquidation.
Indeed, China’s outstanding margin loans — money investors borrow to buy stocks — declined for 16 consecutive sessions to Friday last week, the longest losing streak on record, with 209 billion yuan (US$31.76 billion) worth of leveraged bets unwound during the period.
“Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing,” Hengtai Futures analyst Chang Chengwei said.
Investors remain wary about further weakness in the yuan, too, despite assurances from Beijing that it has no intention of pushing it lower to gain a competitive advantage.
Chastened by the market’s bearish reaction to an early this month depreciation of the yuan, the People’s Bank of China has since kept the yuan’s daily midpoint fixing little changed.
Spot yuan was yesterday at 6.5796, just a few pips from Monday’s close, while offshore it weakened to 6.6194, a 0.6 percent discount to the onshore rate.
In a move that could help ease market strains, Japan and China, Asia’s two largest economies, yesterday said they were working to create a new framework to discuss economic policy coordination, such as steps to stabilize the yuan, the Nikkei Shimbun said yesterday.
China’s central bank has jolted global financial markets twice in six months by allowing sharp, sudden slides in the currency, only to step in aggressively to stabilize it.
Chinese state media yesterday weighed in to warn billionaire investor George Soros against betting on falls in the yuan or the Hong Kong dollar.
Soros, dubbed “the man who broke the Bank of England” when he made more than US$1 billion from short-selling the pound in 1992, has said he is betting against the S&P 500, commodity-producing countries and Asian currencies, although he has not specifically mentioned the yuan or Hong Kong dollar.
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