China’s market plumbs depths
MORE than $ US3 trillion has gone up in smoke in less than a month in China as the country struggles to stem the bleeding from its plunging share markets.
Despite a highly publicised intervention from authorities at the weekend, China’s main stock exchanges in Shanghai and Shenzen remained on a roller- coaster ride this week.
Chinese shares surged in early trade on Monday before paring their gains and then suffering heavy falls yesterday.
Since mid- June, the indexes have lost about 30 per cent and 38 per cent respectively, burning up a combined $ US3.2 trillion ($ A4.27 trillion) in wealth.
That’s more than double the size of Australia’s stock market and 13 times the entire Greek economy gone.
But the colossal slides have been largely overlooked in Australia, where the market gained almost 2 per cent yesterday, as investors focused on the turmoil in Greece, which appears to be headed for a messy exit from the euro zone.
IG market strategist Evan Lucas said that was unfortunate because China was Australia’s largest trading partner and any weakness in the economy there could have some nasty knock on effects here.
He said concerns about the fallout from the market collapse had played a key role in the slide in oil and iron ore prices in recent days.
“You can see already that oil is collapsing, clearly that comes down to China, and iron ore is already falling back to levels we saw earlier this year and that is a big risk to small and mid- cap miners,” he said.
West Texas crude price slumped 7 per cent overnight on Monday to $ US52.50 a barrel, while iron ore prices tumbled another 5.4 per cent to just over $ US52.
Chinese authorities have done all they can to put a floor under the market: short selling has been banned, more than 700 shares have been suspended from trading, new initial public offerings have been cancelled and the country’s largest brokers have agreed to buy 120 billion yuan of blue chip stock.
But the moves have so far failed to calm investors and wild swings have become the norm on markets.
Mr Lucas said the Government’s lack of success could undermine investor confidence further.
But Credit Suisse Australia chief investment strategist David McDonald said the market slide wasn’t completely unexpected, given the sharp rise in Chinese stocks in the past year.
And he downplayed the risk to the rest of the Chinese economy. Despite its multi- trillion dollar size, the share market is still a relatively small part of China’s economy compared with most developed nations, which may help to limit any fallout from the recent slide.
Mr McDonald expects China’s growth trajectory – the economy is expected to grow about 7 per cent this year – to remain intact.