Chinese Economy Concerns Overpower Stocks
Asian shares plunged to 3 and a half year lows on Friday as brief gains earlier in the session paved way to renewed pressure on oil prices and low Chinese data, fueling market players’ concerns over sluggish global economy.
Morgan Stanley Capital International’s broadest index of Asia-Pacific shares outside Japan dipped 0.7 percent to the lowest level since June 2012, and was on its way for a loss of 3.2 percent for the week.
Japan’s Nikkei 225 also covered earlier gains and closed down 0.5 percent, following weekly losses of 3.1 percent.
The Shanghai Composite Index dropped 3.5 percent at the close, sinking more than 20 percent from last month’s high and declining below its low during the depths of a $5 trillion rout in August.
Friday’s downturn was attributed to persistent investor concerns over volatility in the Yuan and a report that some banks in Shanghai have suspended accepting shares of smaller listed firms as collateral for loans.
The selloff is a setback for Chinese authorities who have been interceding to support both stocks and the Yuan after the worst year starter for mainland markets in at least two decades.
As policy makers in China fight to avoid vicious cycle of capital outflows and weakening currency, the resulting financial market volatility has undermined confidence in their ability to manage the rock-bottom economic slowdown since 1990.
According to a market analyst, “Sentiment on the Yuan has to stabilize before we see stability returning to the equity market.”
China’s domestic stock market has become one of the most visible symbols of declining investor confidence in Asia’s biggest economy.
Meanwhile, the Hang Seng China Enterprises Index of equities dove 2.70 percent, while the Hang Seng Index slumped 1.4 percent, as the CSI 300 stumbled 3.2 percent. The plunges put the former on track for a 9 percent loss for the week, and the latter for a plummet of 7.2 percent.
“The market is getting spooked by the turmoil in financial markets and the ongoing concerns about a slowdown in China,” an economist noted.
China is slated to post a host of data on Monday and Tuesday, including fourth quarter gross domestic product.
On Friday, the Chinese Yuan published slight gains, which dragged the Yuan 0.1 percent up on the week, but it was still around 1.4 percent lower against the dollar than it began the year and has lost nearly 5 percent since August.
The People’s Bank of China set a marginally weaker midpoint of 6.5637. The spot market pointed to a 6.5920 per dollar at the open, and was trading at 6.5870 which is 20 pips firmer than the previous close.
“There are some hopes that a series of Chinese economic data due early next week will give investors relief. Traditionally Chinese shares perform relatively well around the time of lunar new year and Shanghai shares also appear to be supported around the 3,000 mark even as they briefly fell below that level yesterday,” a market strategist stated.
On the other hand, United States retail sales data is due later on Friday, as market players try to measure the likelihood of the Federal Reserve hiking interest rates again in March amid world stocks on set for a three consecutive weekly losses.
In the United States, equity markets pointed to a sharply lower open. The NASDAQ 100 futures showed a 1.10 percent plunge or 76.75 points to 4,196.22, as the Standard & Poor 500 futures indicated a slump of 1.02 percent, while the Dow Jones Industrial Average futures slipped 1.12 percent to 16,379.05.
As stated by a chief investment strategist, “This is the relief rally we’ve been waiting for. Pessimism had grown to such a level that enough cash had been raised on the sidelines to support at least a short-term rally. Better-than-expected earnings could be something for the bulls to grasp and provide this rebound some sustainability.”
Moreover, European stocks also opened lower with Germany’s DAX 30 plunging 0.02 percent, as France’s CAC 40 dips 0.47 percent, while the EURO STOXX 50 slid 0.62 percent.
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