By Gregor Stuart Hunter
China's stocks fell 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 1.3% at 3727.12, with 864 stocks
falling and 55 making gains Tuesday, according to Chinese data
provider Wind Info. The Shenzhen Composite fell 5.3% at 1932.83,
while the ChiNext board, composed of smaller cap stocks, and sank
5.7% to 2352.01. All indexes are off more than a quarter from June
highs.
Shanghai's relatively softer decline follows guidance over the
weekend for a rescue fund to invest in exchange-traded funds
tracking blue-chip stocks. Gainers, concentrated in the insurance,
banking and infrastructure sectors, included China Life Insurance
Co., Bank of China Ltd. and China Railway Construction Corp., all
of which hit their daily trading limit after shares rose 10%.
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. According to data from FactSet,
514 stocks are suspended in Shenzhen and 162 in Shanghai. 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.
That buying looks set to continue. Chinese brokerage Haitong
Securities Co. on Tuesday said it would boost the amount it invests
in blue-chip exchange-traded funds by 15 billion yuan ($2.42
billion). The announcement 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. The sharp
falls moderated Tuesday, with Brent crude gaining 0.9% to
$57.05.
Stocks in Hong Kong extended a selloff after their biggest fall
in three years on Monday, with the benchmark falling 1.2%. A gauge
of Chinese companies with Hong Kong listings, known as H-shares,
was down 2.9%. The drop from its high in May briefly put the index
in bear market territory, defined as a 20% fall.
Elsewhere, Asian markets rose 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 1.3% while South Korea's Kospi
Composite fell 0.7%.
Australia's S&P/ASX 200 rose 1.9%, its strongest one-day
gain since mid-February, with falling oil expected to lower
operating costs for energy-intensive commodity producers. The
Reserve Bank of Australia kept benchmark interest rates on hold at
2.00%.
Meanwhile, banks warned that Malaysia's financial markets could
come under further stress, after the country's currency fell to its
weakest level since the Asian financial crisis Monday. The
oil-exporting nation has been hit by falling commodity prices,
which have nearly halved since July last year. Malaysia's stocks
are down 1%.
The ringgit strengthened to 3.8060 against the dollar amid
speculation that Malaysia's central bank may be intervening to buoy
the currency, traders say. The currency is down 8.2% for the year,
making it one of Asia's worst-performing currencies.
"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 and Dominique Fong contributed to this
article.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com