By Chao Deng
China's shares bounced from their lows Tuesday, after an 8.5%
drop a day earlier spurred declines in global markets and prompted
questions about what Beijing's next steps to stem selling might
be.
The Shanghai Composite Index was down 0.8% at 3694.67, after
falling much as 5% and rising as much as 1% earlier. The smaller
Shenzhen Composite was down 1%, after falling more than 6%.
Fresh worries about China's stocks, which had notched three
straight weeks of gains through Friday, have added to the anxiety
about disappointing earnings results overseas elsewhere in Asia.
Japan's Nikkei Stock Average was down 0.9%, Australia's S&P ASX
200 is flat and South Korea's Kospi was down 0.2%.
Meanwhile, shares in Hong Kong were up 1.8% and a gauge of
Chinese firms listed in the city rose 0.9%.
Some say the dip in Hong Kong, which hasn't been as battered by
Shanghai's wild swings, has a silver lining.
"If you missed the first bottom, here is a second opportunity,"
wrote Nomura in a research note, adding that it might be a good
time to consider the offshore-listed MSCI China index. "We expect
the index to finish the year higher than its April peak and that
the current bull market in the MSCI China will peak in 2017."
On Monday, the Shanghai Composite Index fell 8.5%, marking its
biggest one day drop in more than eight years. China's main index
has all but wiped out gains from its recent trough on July 8, and
remains down more than a quarter from its seven-year plus peak in
mid-June.
The tumble calls into question the effectiveness of Beijing's
recent efforts to prop up the market, despite a ream of measures to
stem selling, from forcing big shareholders not to sell shares for
six months to halting new public listings.
Opinion: With China, stock market manipulation goes global
(http://www.marketwatch.com/story/market-manipulation-goes-global-2015-07-27)
Late Monday, a spokesman for China's top securities regulator
tried to allay some investor concerns, saying that the government
will step up its purchases of stocks. Zhang Xiaojun, spokesman at
the China Securities Regulatory Commission, said the a state-owned
fund called China Securities Finance Corp., which has been buying
up battered shares, didn't "exit" the market.
The comments appeared to address speculation the government
could pull back support, a possible driver for some of Monday's
losses. Zhang said the company will "increase its holdings" of
stocks "at appropriate times" and will continue to fulfill its role
in "stabilizing the market."
Zhang also pledged to root out any "malicious" stock sales by
individuals that authorities think could wreak havoc on the
market.
Investors will be looking for clues about what rescue measures
come next from China's top leaders, currently gathering for their
annual summer talks at the northern seaside town of Beidaihe.
There is a "lesson learned," wrote Tim Condon, strategist with
ING, in a note Monday morning. "Sentiment manifestly remains
fragile. We expect a show of force from the authorities today to
ensure the market closes higher."
Read: This ETF buys only the best Chinese stocks
(http://www.marketwatch.com/story/how-to-own-chinese-stocks-without-losing-much-sleep-2015-07-10)
The amount of outstanding margin loans, while sharply lower than
during the peak of the rally, also remains a concern. Monday's
steepest falls were concentrated in sectors with a high amount of
margin debt remaining, including big brokerages, insurers and
banks, according to analysts. While the buying of shares with
borrowed money helped fuel a yearlong rally, the unwinding of those
positions also exacerbated the fall, as investors were forced to
sell holdings to cover losses.
Global stock markets, while largely insulated from China's
gyrations in recent weeks, fell after the sharp moves, with the Dow
Jones Industrial Average hitting its lowest level in nearly six
months. The Stoxx Europe 600 suffered its biggest one-day
percentage decline in a month.
The declines in Chinese stocks have highlighted concerns about
slowing growth in the world's second-largest economy. Slumping
demand from China, the world's biggest purchaser of many materials,
has rippled through the commodities and foreign-exchange
markets.
In early Asian trade, spot gold prices edged down 0.2% to $1,094
a troy ounce after climbing overnight. Gold has lost nearly 7% of
its value in the past month amid expectations for tighter U.S.
monetary policy. Other metals including silver and platinum also
traded fractionally lower.
Read: The carnage isn't over in gold, other metals-mining stocks
(http://www.marketwatch.com/story/the-carnage-isnt-over-in-gold-other-metals-mining-stocks-2015-07-27)
Crude oil futures continued falling. Brent slipped 39 cents to
$53.08, while the U.S. benchmark slumped to a new four-month low
near $47 a barrel.
In currencies, the yen strengthened as the U.S. dollar slipped
on patchy economic data, which would hurt Japanese exporters. The
greenback was changing hands at Yen123.52 yen in Asian trading,
down from Yen123.81 yen late Friday in New York.
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