Chinese shares plunged more than 6 per cent to 14-month lows on Tuesday after oil prices dropped again, reviving concerns about global growth and prompting a sell-off in the world’s equity markets.
Battered by a late selling frenzy, the benchmark Shanghai Composite Index ended down 6.4 per cent at 2749.79 points, its lowest close since Dec 1, 2014.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 6 per cent to 2940.51, also its lowest since the beginning of December 2014.
After a rebound on Friday and early Monday, crude prices fell back below $30 a barrel, not far from last week’s 12-year lows, ending a couple of days of gains for Wall Street stocks.
China’s fickle stock markets have now slumped about 22 per cent so far this year on concerns about the slowing economy and confusion over the central bank’s foreign exchange policy.
Many investors have lost the stomach for the market after a wild ride since last summer, when shares crashed 40 per cent. Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in will have lost their shirt again in January.
“We’ve seen another stampede driven by panic,” said Yang Hai, analyst at Kaiyuan Securities.
“There’s no good news in sightwhile investors are being affected by the global ‘risk-off’ mood.”
The slump has triggered a lot of forced liquidation, he added.
Indeed, China’s outstanding margin loans – money investors borrow to buy stocks – declined for 16 consecutive sessions to Jan 22, the longest losing streak on record, with 209 billion yuan ($32 billion) worth of leveraged bets unwound during the period.
“Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing,” said Chang Chengwei, analyst at brokerage Hengtai Futures.
Wang Baoan, chief of the National Bureau of Statistics, sounded a solitary voice of confidence in the market, while trying to reassure investors that the volatility would have a limited impact on the real economy.
Wang also reiterated Beijing’s line that there was no basis for further yuan depreciation given China’s economic fundamentals.
“China’s economy will be supported by urbanisation, consumption and other positive factors,” he said.
Investors nevertheless remain wary about further weakness in the yuan, though the People’s Bank of China (PBOC) has kept the yuan’s daily midpoint fixing little changed since the market’s bearish reaction to its early January depreciation.
Spot yuan was at 6.5810 on Tuesday, weakened slightly from Monday’s close, while offshore it slipped to 6.6115, a 0.5 percent discount to the onshore rate.
In a move that could help ease market strains, Japan and China, Asia’s two largest economies, said on Tuesday they were working to create a new framework to discuss economic policy coordination, such as steps to stabilise the yuan, the Nikkei newspaper said.
China’s central bank has jolted global financial markets twice in six months by allowing sharp, sudden slides in the currency, only to step in aggressively to stabilise it.
Chinese state media also weighed in on Tuesday to warn billionaire investor George Soros against betting on falls in the yuan or the Hong Kong dollar.
Soros, dubbed “the man who broke the Bank of England” when he made more than $1 billion from shorting sterling in 1992, has said he is betting against the S&P 500, commodity-producing countries and Asian currencies, though he has not specifically mentioned the yuan or Hong Kong dollar.
The central bank has also been making plenty of liquidity available to the banking system to avoid any cash squeeze ahead of long Lunar New Year celebrations beginning in early February. Traders said on Tuesday that the bank would inject 440 billion yuan into the money markets, the biggest daily injection in three years.
The decline in the yuan and concerns about the country’s growth prospects have fuelled a flight of capital out of the world’s second-largest economy which policymakers are struggling to contain.
January has already seen a slew of weak economic data, and on Tuesday the nation’s top economic planner said rail freight, a barometer of industrial activity, fell 11.9 per cent by volume last year.
Other stock markets in Asia were also down on Tuesday, with Japan’s Nikkei dropping 2.4 per cent and MSCI’s broadest index of Asia-Pacific shares outside Japan down 1.5 per cent, extending earlier losses after the late slide in China.
All eyes will be on a US Federal Reserve meeting this week to see whether it acknowledges concerns over the faltering Chinese outlook and global market turmoil and whether that will delay any interest rate increases this year.