Global Stocks Tumble Further Amid Doubts About China and Emerging Economies
By NEIL GOUGHAUG. 23, 2015 The New York Times
HONG KONG — Global markets continued to plunge on Monday, with stocks across Asia sliding sharply, led by a rout in China.
The main Shanghai share index was down 8.4 percent by early afternoon, erasing its gains so far this year. The selling in China has accelerated despite extraordinary government intervention in the past two months aimed at propping up share prices. As Monday’s slide highlighted, those efforts have not been a success.
Investors’ concerns over China’s economic slowdown and a souring view of once-favored emerging economies have rattled financial markets around the world in recent days, and showed no signs of letting up on Monday.
The gloom was shared across the region. In Japan, the Nikkei 225 stock average was 3.2 percent lower by early afternoon, while Australia’s main index was down almost 4 percent. Asian trading in index futures suggested a sharply lower opening on Monday for stocks in the United States.
In Hong Kong, where the Hang Seng Index was down nearly 5 percent by early afternoon, the mood at local brokerages was grim.
“People who had wanted to bottom feed by buying earlier this morning are all losing money,” said Andy Wong, a Hong Kong stockbroker. “The market trend does not look good, it is all bad news, globally. All the markets are going down, globally; The Chinese stock markets are in free fall today.”
Leung Chung, a 62-year-old retiree and day trader in a T-shirt and with a toothpick in his mouth, looked sourly at the monitors at his local brokerage in late morning. “I just purchased some stocks earlier this morning, but have already lost money,” Mr. Leung said. “I am not too concerned as I only bought stocks with solid financial strength.”
Most Asian currencies fell against the dollar, including the Malaysian ringgit, which slipped 1.4 percent in early afternoon trading. The yen, considered a regional haven currency, rose against the dollar for the fourth day in a row. Prices for commodities such as oil and copper continued their retreat. A Bloomberg index of total returns on commodities fell to its lowest level since 2002.
Investors in Asia were reacting to the steep sell-off on Wall Street on Friday, when the Dow Jones industrial average tumbled 3.1 percent, threatening to end a breathtaking six-year rally in United States stocks.
The rout has deepened globally as uncertainties have increased over the health of China’s economy, previously a major engine of global growth. The surprise devaluation on Aug. 11 of China’s currency, the renminbi, was the biggest drop since the country’s modern exchange rate system was established in 1994.
The move raised concerns that China’s slowdown could be worse than previously appeared, a development that would have far-reaching effects, given China’s increasing economic importance to Asia and the rest of the world.
“Asian financial markets are seeing an intensification of selling pressure in the aftermath” of China’s devaluation, Claudio Piron, a strategist in Singapore for Bank of America Merrill Lynch, wrote Monday in a research report. “The market’s confidence in China’s ability to deliver growth remains in question.”
On Friday, new data showed China’s manufacturing industry contracted in the first three weeks of August at the fastest pace since the depths of the financial crisis.
It was the latest sign of continued deterioration in industrial activity across China, suggesting that the government’s efforts to support growth — which include several interest rate cuts and directing billions of dollars in new loans to infrastructure projects — have fallen short.
At the same time, state intervention in the stock markets appears to have backfired. China’s stock markets had enjoyed a tremendous rally, more than doubling in the year to mid-June. But they have plunged since then, despite the government ordering state agencies to buy shares and barring large shareholders from selling down their stakes.
Despite this, the market continued to slump. On Monday, the Shanghai index fell to its lowest level so far this year; it traded as low as 3,206.29 points, a drop of 8.6 percent from the close on Friday and nearly 40 percent below its peak in June.
The plunge on Monday in Shanghai came despite an announcement by China’s government on Sunday that the country’s pension funds had been approved for the first time to invest in stocks.
Pension funds can now invest as much as 30 percent of their holdings in the stock market, according to the statement by the State Council, China’s cabinet. The main state-run pension fund manages about 3.5 trilllion renminbi, or about $550 billion, in retirement savings of ordinary citizens.
Keith Bradsher contributed reporting from Hong Kong.