By Gregor Stuart Hunter
Chinese shares fell sharply early Wednesday, even as Beijing
summons new measures to arrest a three-week selloff.
The Shanghai Composite is down 6.2% at 3496.99. The smaller
Shenzhen Composite fell 4.1% to 1,852.98, while the ChiNext board,
composed of small-cap stocks, sank 2%.
In Hong Kong, the Hang Seng Index fell 4.6% and a gauge of
Chinese companies listed offshore in the city, known as H-shares,
fell 6.4%.
On Wednesday, China's central bank pledged "various channels" to
provide liquidity to the stock market, including to China
Securities Finance Corporation, which funds margin lending by
brokers. The arm of the securities regulator also will increase
purchases in small-cap stocks, the regulator said.
China has put an arsenal of measures to work in recent days to
stem the selloff that has wiped out roughly $2.4 trillion in value
from China's equities. 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 brewing that Beijing's increasingly
desperate measures to calm markets are building bigger 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.
A huge chunk of the stocks listed on the Shanghai and Shenzhen
markets remain suspended. A total of 1,544 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."
Worries about China's faltering demand amid the stock slide are
also driving down commodity markets, 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."
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.
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.
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