Wall St sell-off prompts global rout

A-shares likely to con­tinue en­tic­ing for­eign in­vestors

China Daily (Hong Kong) - - FRONT PAGE - By WANG YANFEI wangyan­fei@chi­nadaily.com.cn

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.

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