By Gregor Stuart Hunter
China's stocks fell early Tuesday, casting doubt on the potency
of Beijing's aggressive rescue efforts, while investors elsewhere
in Asia appear to shrug off concerns over Greece's debt
situation.
The Shanghai Composite is down more than 3%, wiping out a
rebound on Monday, with nearly 900 companies losing and fewer than
50 gaining. The Shenzhen Composite fell 3.4% while the ChiNext
board, composed of smaller cap stocks, and sank 4.2%. According to
data from FactSet, 514 stocks are suspended in Shenzhen and 162 in
Shanghai. All indexes are off more than a quarter from June
highs.
Stocks in Hong Kong recovered after their biggest fall in three
years on Monday, with the benchmark gaining 0.6%. A gauge of
Chinese companies with Hong Kong listings, known as H-shares, was
down 3.2%. The drop from its high in May puts the index in bear
territory, defined as a 20% fall.
Some analysts attribute Tuesday's losses in China to margin
calls, when brokerages call in money owed by investors who borrowed
to buy shares. "The pressure on margin calls remain heavy," said
Qian Qimin, an analyst at Shenyin Wanguo Securities. While some
highly leveraged Chinese investors have already been forced to
liquidate margin positions in small and midcap stocks, the selloff
could continue.
"The entire clearance process, in our view, may last a few more
weeks," said Nomura in a research report.
China has rolled out a steady stream of measures to arrest the
selling frenzy that knocked $2.4 trillion in value from China's
equities over the past three weeks. Despite the recent rout,
Shanghai shares are up 82% over the past year, and 16% since
January. Shanghai recovered modestly Monday, which some investors
and analysts attributed to heavy buying of blue-chip stocks by
state-backed funds.
On Tuesday, Chinese brokerage Haitong Securities Co. said it
would boost the amount it invests in blue-chip exchange-traded
funds by 15 billion yuan ($2.42 billion). That follows an agreement
over the weekend among 21 brokerages to invest in a stock-rescue
fund.
Other measures include halting new initial public offerings,
raising quotas for foreigners to buy stocks and an initiative by
the central bank to provide funds to help investors borrow to buy
shares.
Some brokerages are encouraged by Beijing's efforts: "Chinese
monetary and fiscal easing policies, combined with further reform
measures, should support [mainland] A-share indexes to new highs in
2016," says Raymond So, co-head of research at Chinese broker CCB
International Securities. A number of sectors stand to benefit from
the Beijing-backed call to buy, including financials, property
developers, health care, utilities and telecoms, he added.
Still, China's volatility is starting to spill into global
markets, as Beijing's moves to arrest stock selloffs have darkened
the outlook for the world's second-largest economy. Oil prices
tumbled nearly 8% Monday, their biggest single-day decline in more
than three months, amid fresh fears about weaker demand from China,
one of the world's largest consumers of raw materials. Brent crude
rose 0.9% to $57.05.
Elsewhere, Asian markets rose early Tuesday as investors appear
hopeful that a resolution between Greece and its creditors is still
within reach.
"It seems that investors either believe that 'Grexit' can still
be avoided, or that, if it does happen, the contagion will be
limited," analysts from Capital Economics wrote in a research
report.
Greece's vote on Sunday to reject creditors' demands, including
pension cuts and tax increases, could put Greece closer to exiting
the eurozone. That led markets in Europe and the U.S. lower, though
the declines weren't as dramatic as expected. The euro is unchanged
against the U.S. dollar, while the yen gained 0.1% against the
dollar.
The Nikkei 225 Stock Average rose 1.4% while South Korea's Kospi
Composite fell 1.1%.
Australia's S&P/ASX 200 rose 1.8% with falling oil seen to
lower operating costs for energy-intensive commodity producers.
Traders also await an interest-rate decision from the Reserve Bank
of Australia, which is expected to remain on hold.
Meanwhile, banks warned that Malaysia's financial markets could
see further stress, after the country's currency earlier fell to
its lowest level this month since its peg to the U.S. dollar ended
in 2005. Malaysian markets have been under pressure this year as
the oil-exporting nation is hit by falling commodity prices, which
have nearly halved since July last year. Malaysia's stocks are down
1%, while the ringgit strengthened 0.5% to 3.8082 against the
dollar after hitting 3.8260 earlier in the trading session.
"Among Asian financial assets, Malaysia's are the most exposed
to oil," analysts from ING wrote in a research note. Efforts to
strengthen the ringgit "will give way if oil prices continue to
decline," the bank added.
Malaysia's currency also has come under pressure as political
strain builds against the country's prime minister. The Wall Street
Journal earlier reported that Malaysian government investigators
looking into the activities of state investment fund 1Malaysia
Development Bhd., or 1MDB, had traced almost $700 million in
deposits into what they believe are Mr. Najib's personal accounts.
Mr. Najib has denied wrongdoing.
Anjie Zheng, Yifan Xie, Dominique Fong and Jacky Wong
contributed to this article.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com