Wall St sell-off prompts global rout
A-shares likely to continue enticing foreign investors
China’s A-share market, together with other major Asian bourses, plunged on Thursday in a chain reaction following the sell-off in the United States.
Major markets in Asia finished sharply lower, with the fall in the Chinese mainland leading the region — the Shanghai Composite Index fell 5.2 percent, hitting the lowest level since February 2016; Japan’s Nikkei 225 was down 3.9 percent and Hong Kong’s Hang Seng dropped 3.6 percent.
The plunge in Asian stocks is believed to be a direct reaction to the sell-off in the US market on Wednesday, the sharpest drop in eight months.
Market observers attributed the US stock correction to the market anticipating US Federal Reserve interest rate rises, with such expectations dampening the attractiveness of stocks with higher treasury bond yields.
A response to recent tit-fortat tariffs between the US and China, which may hamper US companies’ third-quarter results in affected sectors, also played a role in the recent US share sell-off, according to UBS Securities.
“The US market sell-off last night spooked sentiment and rekindled memories of similar trading sessions at the beginning of this year,” said Medha Samant, Fidelity International’s investment director for Asian equities. “This negative sentiment could likely roll over to the Asian markets in the short term, as slowing global growth, a strong dollar and protectionism are already weighing on sentiment, especially for emerging markets and currencies with vulnerabilities.”
Affected by external fluctuations, Chinese A-shares may continue to face short-term shocks. But these are not expected to last long amid efforts to maintain proper liquidity levels and open up financial markets to usher global funds into the domestic market, according to analysts.
“Like before, the Chinese stock market may continue to fluctuate with external impacts, but major risks are concentrated in the shortterm,” said Wang Youxin, a Bank of China analyst.
Domestic market panic is expected to ease “to a certain extent” as the People’s Bank of China, the country’s central bank, has tried to inject more liquidity into the market by implementing a medium-term lending facility, a central bank tool to help manage liquidity, as well as lowering reserve requirement ratios for lenders, he said.
Earlier this month, the central bank said it would reduce the reserve ratio for most banks by one percentage point, the fourth time this year it sought to increase liquidity for businesses.
Wang said China’s continued efforts to promote economic and financial openingup will play a positive role in stabilizing domestic investor sentiment.
Also, analysts said the country’s financial opening-up will continue to help A-share market to attract more foreign investors.
“Large amounts of foreign funds expected to flow into the Chinese A-share market will constitute a boost as China has accelerated its pace of opening up its capital markets this year,” he said, adding that possible irrational volatility in the stock market deserves close attention.
Hong Kong stocks slumped to their lowest levels in 16 months on Thursday in tandem with a global selloff as investors took flight amid growing jitters over poor economic growth forecasts, soaring interest rates and unrelenting trade tensions.
The city’s benchmark Hang Seng Index plummeted 3.54 percent, or nearly 1,000 points, to end at 25,266.37 — the lowest since May last year — on turnover of HK$63.88 billion. The Hong Kong China Enterprises Index, which tracks mainland shares listed in the city, plunged to 10,092.52 — down 3.35 percent from the previous day’s close.
Mainland tech giant Tencent Holdings bore the brunt of the rout, with its share price extending its decline for the 10th consecutive day to HK$267.60 — down 6.56 percent from Wednesday’s closing price. The stock has slumped more than 35 percent since the beginning of this year.
A sell-off on Wall Street spilled over to the Chinese mainland and other Asian bourses in the morning, with the CSI 300 Index, which consists of the 300 largest and most liquid A-share stocks, shedding 4.8 percent; and the Shanghai and Shenzhen composite indexes plunging 5.22 percent and 6.45 percent, respectively.
The Dow Jones Industrial Average dove 3.15 percent — the biggest one-day drop since February this year — dragged by technology shares, with the “FAANG” stocks — Facebook, Apple, Amazon, Netflix and Alphabet’s Google — all losing more than 4 percent.
Marcella Chow, global market strategist at J.P. Morgan Asset Management, said investors were shocked by the pace at which interest rates have been going up, causing multiples to come under pressure and volatility to rise.
Investors had been spooked by US President Donald Trump’s comments, accusing the US Federal Reserve of having “gone crazy” with its continued rate hikes, while bleak global economic predictions added to the market blues.
“Data began changing this week, with the IMF (International Monetary Fund) revising its estimates downwards for global growth, as well as growth for China and the US, amid escalating trade tensions,” said Kristina Hooper, chief global market strategist at Invesco.
The IMF said on Monday it had downgraded its outlook for the world economy’s growth rate to 3.7 percent for this year and 2019 — down 0.2 percent from its earlier forecast in July.
A stock market panic that started on Wall Street (top left) swept through Asia on Thursday, knocking down indexes in Japan (top right) and Hong Kong (bottom left), and saw China’s benchmark Shanghai Composite Index (bottom right) hit a near three-year low.