China slowdown fuels fresh Asia equity woes after global rout
Shanghai led a broad Asian equities sell-off Wednesday, plunging more than 4%, as further evidence of slowing in China's economy brought a new bout of volatility to global markets.Updated: Sep 03, 2015 21:46 IST
Shanghai led a broad Asian equities sell-off Wednesday, plunging more than 4%, as further evidence of slowing in China's economy brought a new bout of volatility to global markets.
Fears of an imminent Chinese slowdown and concerns about the slowing Indian economy spooked the Bombay Stock Exchange and National Stock Exchange falling more than 2%, eroding about Rs 2 lakh crore of investor wealth. The Sensex lost 587 points to close at over a one-year low.
Wednesday's losses followed a dismal day on US and European markets as clouds gathered over the worldwide economy, amid mounting signs of stumbling growth.
The Australian dollar -- which is heavily linked to demand for the country's abundant natural resources -- was plumbing six-year lows with figures out of Canberra showing the economy logged a slower-than-expected 0.2% quarterly expansion.
That came after Canada officially entered recession, hit hard by stubbornly-low oil prices.
Both countries' economies are dependent on the exports of commodities -- such as iron ore -- that have powered Chinese growth over the last decade.
Adding to tensions are uncertainties about the US Federal Reserve's plans for interest rates ahead of a policy meeting this month, with fears a tightening of monetary policy in the world's number one economy will further dampen the worldwide economy.
"You have worries about the global growth outlook led by Chinese concerns at a time when the Fed is thinking about raising interest rates and that's leaving investors very twitchy," Shane Oliver, a global strategist at AMP Capital Investors Ltd. in Sydney, told Bloomberg News.
"I think we've seen the worst but it's an environment where volatility is likely to continue."
Shanghai's composite index plunged 4.39% at the opening Wednesday before paring the losses to sit 2.8% lower in late morning trade.
On Tuesday official data showed Chinese factory activity contracted in August, the latest sign that growth in China -- which accounts for more than 13% of global GDP -- is slowing.
While the Shanghai stock market is somewhat decoupled from the real economy -- many analysts and players acknowledge it is akin to gambling -- wild ructions there are seen as worrying indications of Beijing's ability to manage structural changes.
Commentators say the high government-spending model of the last three decades is unsustainable, and needs to transition into consumer spending.
They point to the country's huge population as a vast, under-tapped source of demand that could offer opportunities for growth; but fears abound that Communist Party managers are struggling to shepherd the changes.
Washington, whose own recovery from the global financial crisis is still far-from entrenched, will this week urge China to better communicate its policies, when representatives from the elite Group of 20 meet in Turkey.
Treasury Secretary Jacob Lew "will emphasise that, fundamentally, the world needs more demand", said a US official, who spoke on condition of anonymity.
Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co. said Beijing appeared to have been buying blue-chip stocks over recent days in an effort to support the market.
"But investors have lost confidence amid the ongoing deleveraging and the overnight global rout," he said. "The correction isn't over yet."
The Chinese losses were reflected across most of the region, with Hong Kong down 1.80 percent and Seoul off 0.53%.
Sydney, where several companies with close business ties to China are listed, tumbled 1.32%.
However, Tokyo, which dived almost four percent Tuesday, was up slighting, adding 0.79% by lunch.
On Wall Street Tuesday the Dow was down 2.84%, the broader S&P 500 lost 2.96% and the Nasdaq gave up 2.94%.
And in Europe there were losses of 3.03% in London, 2.38% in Frankfurt and 2.40% in Paris.
The Australian dollar, which was hovering around 70 US cents early Wednesday morning, briefly slipped to 69.95 US cents, its lowest in six years. The Reserve Bank of Australia Tuesday kept interest rates at a record-low 2.0% to support growth.
Oil extended its sell-off to a second day. US benchmark West Texas Intermediate for October delivery fell 98 cents, or 2.2 percent, to $44.43 while Brent slipped 79 cents, or 1.6%, to $48.77.
On Tuesday WTI sank 7.7% and Brent lost 8.5%. Until then the contracts had enjoyed a three-day rally, adding more than 25 percent, on hopes for an easing of a worldwide supply glut.