China’s mar­ket plumbs depths

Townsville Bulletin - - STATE OF ORIGIN III -

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.

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