By Gregor Stuart Hunter
Asian markets opened lower Wednesday as China's three-week stock
selloff starts to unnerve global investors and concerns about
Greece's future in the eurozone deepen.
The Nikkei 225 Stock Average declined 1.2% in early trading
while Australia's S&P/ASX 200 fell 0.6%. South Korea's Kospi
Composite was flat.
Worries about China's faltering demand amid the stock
slide--which has wiped out roughly $2.4 trillion in value from
China's equities--are driving commodity markets lower, with copper
hitting a six-year low on Tuesday. China is the world's top copper
consumer, accounting for about 40% of global consumption. Pessimism
about China, coupled with worries about a supply glut, also sent
U.S. oil prices to a near three-month low Tuesday.
Brent, the global oil benchmark, rose 37 cents, or 0.7%, to
$56.85 a barrel on ICE Futures Europe, after falling as low as
$55.10 a barrel earlier in the session.
"Fears about the risks to financial stability and the wider
economy have contributed to negative sentiment toward commodities,"
analysts from Capital Economics wrote in a research report. "The
impact has been felt most in industrial metals, such as copper,
where China is by far the most important consumer."
China has put an arsenal of measures to work in recent days to
stem the selloff. Over the weekend, Beijing suspended initial
public offerings and made it easier for investors to borrow to buy
stocks. China's brokers also vowed to buy shares until the Shanghai
Composite hits the 4500 level.
Still, concerns are rising that Beijing's increasingly desperate
measures to calm markets are building bigger financial risks into
the country's financial system, particularly a commitment from the
People's Bank of China to provide unlimited liquidity support to
China Securities Finance Corporation, which funds margin lending by
brokers.
Chinese stocks are expected to remain in focus, even as a huge
chunk of the stocks listed on the Shanghai and Shenzhen markets
remain suspended. A total of 1544 companies in the Shanghai
Composite and its Shenzhen counterpart are halted from trading
today, representing 54.7% of index constituents, according to data
from FactSet.
"The rescue plan could potentially increase the systemic risk
down the road," analysts from Société Générale wrote in a research
report. "Initially most of the stock market risk was with
households, but with the rescue plan, systemically important
institutions are taking up more risk when the market is still under
immense downward pressure. Our biggest concern is that the progress
of structural reform could suffer as the result."
Meanwhile, eurozone leaders set a Sunday deadline for Greece to
come up with a new set of more stringent measures to avoid
defaulting on the European Central Bank and exiting the currency
union. While the leaders raised the possibility of some short-term
financing to help Athens make a July 20 payment, many of the policy
overhauls and budget cuts demanded were overwhelmingly rejected by
Greek voters in a referendum last weekend.
Global bond markets rallied as investors sought haven assets in
developed-country debt. Yields on benchmark U.S., German, and U.K.
bonds hit their lowest levels in more than a month. On Tuesday, the
International Monetary Fund warned of the risks of raising rates
too early in the U.S., and called for the Fed to delay a raise
until 2016. Concerns that the Federal Reserve would raise rates
prompted a bond selloff in June, given concerns that higher rates
would lower their outstanding value.
The euro also sank 0.5% against the Japanese yen as investors
sought assets perceived to be safe.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com