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China’s economic troubles pounded Asian and global markets on the first trading day of the year, causing shares to tumble and currencies to weaken and leaving investors worried about a continuation of last year’s market turmoil.
In mainland China, Shanghai’s benchmark stock index fell 6.9% to 3296.26, and Shenzhen’s smaller market dropped 8.2%. More than 40% of listed mainland companies hit their daily 10% downward trading limits. Authorities halted trading early under a new circuit-breaker system that was inaugurated on Monday.
Benchmark stock indexes slid 3.1% in Japan, 2.7% in Hong Kong, and 2.2% in South Korea.
In the U.S., the Dow Jones Industrial Average plunged 428 points, or 2.5%, to 16997 by midday. The benchmark Stoxx Europe 600 dropped 2.5%.
The Chinese yuan fell to its weakest level versus the dollar in nearly five years, pushing down currencies from South Korea’s won to the Malaysian ringgit, as fears escalated that the Chinese currency’s slide would drag down the economies of its trading partners.
Investors and traders blamed the turmoil on concerns about China’s huge economy, whose slowing growth and slackening demand has pummeled markets for commodities and industrial exports and led countries around the globe to downgrade their growth outlooks.
On Monday, a closely watched private index of Chinese manufacturing activity suggested the country is starting off the year on shaky ground, fueling investor concern that the slumping industrial sector may be worse off than expected.
The yuan also weakened swiftly Monday, with no sign that authorities would step in to prop it up as they often have in recent months.
Some investors also were worrying about the expected lifting of a six-month ban on Friday that has kept big shareholders from unloading stocks. Chinese regulators implemented the ban during the summer in an attempt to halt a market selloff.
“A large chunk of the market still believes that China is doing much better than it really is,” said Lin-Jing Leong, a bond-fund manager at Aberdeen Asset Management, ADN -2.56 % which manages $429.7 billion in assets. When evidence surfaces that things aren’t looking so good, “panic emerges,” she said.
Monday marked a fresh bout of jitters for Chinese markets, following a rout during the summer in which heavy selling triggered volatility around the globe. Monday’s losses wiped out the bulk of the Shanghai Composite Index’s 9.4% gain for 2015, putting the benchmark up only 1.9% over the past 12 months. They also triggered the brand-new circuit-breaker rules that Chinese authorities put in place this year, to halt the kinds of wild market swings seen last year.
The first trading halt on China’s mainland stock exchanges came shortly before 1:15 p.m., when the CSI 300, a benchmark of the largest 300 stocks listed in Shanghai and Shenzhen, fell 5%, triggering a 15-minute halt under the new rules. A further slide to 7% triggered a second halt under the new system, this time for the remainder of the day.
Some analysts and investors say the circuit breaker could trigger more selling.
“The circuit-breaker system actually creates a downward spiral” as more investors get nervous about trying to get out before others, said Hao Hong, managing director at Bank of Communications Co. “Having this so-called system in place is actually making the selling worse.”
Market watchers say they aren’t expecting Monday’s fall to develop into a full-fledged repeat of last year’s plunge. A big difference this time is that investors have cut back on the use of margin loans, or borrowing money to buy stocks. During last year’s first-half market surge, local investors borrowed money from Chinese brokerages to purchase shares, helping drive the market higher. The subsequent market slide in the summer accelerated as investors sold holdings to repay their brokers.
Since then, official margin loans in China’s mainland market have fallen more than 17%, from a peak of 2.3 trillion yuan ($354 billion) in June. Authorities also clamped down on loans from unofficial “shadow” lenders and took aggressive steps to calm the market, from cracking down on short sellers to tasking government funds to buy shares.
More recently, authorities eased up on some of those measures, including a freeze on initial public offerings, which restarted in December—a sign many investors interpreted as officials’ vote of confidence in the stock market’s stability.
“It’s quite an unexpected situation today,” said Leo Gao, a Shanghai-based fund manager at hedge fund Greenwoods Asset Management, of how steep the losses were. “It’s more panic selling than anything.”
The investor jitters were triggered in part by data released Monday by Caixin Media Co. suggesting that manufacturing in China contracted for the 10th consecutive month. In addition, indexes that track production, new orders and new export orders all declined. That followed the release of China’s official purchasing managers index on New Year’s Day, which showed a measure of factory-floor conditions improving slightly but still indicating that overall activity is shrinking.
The news adds to other worrying data from China, which is expected to reveal later this month whether it hit its growth target of about 7% for 2015. That would be the country’s slowest growth in 25 years, and economists say Beijing could set an even-lower target of around 6.5% for 2016.
“Business is not good,” said Chen Ming, a marketing assistant with Zhuhai Bo Yen Houseware Manufactory Ltd. in southern Guangdong province, which exports stone and metal garden furniture to Europe, the U.S. and Southeast Asia. “The orders are dropping. Many factories are shutting down. Things are getting tougher.”
The weaker currency—the yuan depreciated 2% against the dollar in December—hasn’t helped their business because customers ask for discounts whenever it softens, she said.
Monday’s yuan decline started after China’s central bank guided the currency weaker in the morning, setting the midpoint for the day’s trading range at 6.5032 yuan per dollar, its weakest level since 2011. China lets the currency trade 2% above or below that level in its onshore market.
Although the yuan has been weakening steadily for months, traders say they suspect China has been intervening in the markets to slow the decline—something that didn’t appear to happen Monday.
“There’s been a lot of surprise in the market that China hasn’t slowed this decline [in the yuan] or come in more aggressively,” said Mitul Kotecha, head of rates and foreign-exchange strategy in Asia at Barclays.
The offshore and onshore yuan traded at their weakest levels since April 2011, with the onshore yuan as weak as 6.5381 to one U.S. dollar in late trade Monday.
Currencies in Asia slid across the board against the U.S. dollar. South Korea’s won fell more than 1.4%, the Malaysian ringgit sank 1.2% and the Taiwanese dollar dropped 0.9%, amid fears the Chinese yuan’s slide would drag down these economies.
China Market Plunge Has Investors Wondering About More Turmoil - WSJ
In mainland China, Shanghai’s benchmark stock index fell 6.9% to 3296.26, and Shenzhen’s smaller market dropped 8.2%. More than 40% of listed mainland companies hit their daily 10% downward trading limits. Authorities halted trading early under a new circuit-breaker system that was inaugurated on Monday.
Benchmark stock indexes slid 3.1% in Japan, 2.7% in Hong Kong, and 2.2% in South Korea.
In the U.S., the Dow Jones Industrial Average plunged 428 points, or 2.5%, to 16997 by midday. The benchmark Stoxx Europe 600 dropped 2.5%.
The Chinese yuan fell to its weakest level versus the dollar in nearly five years, pushing down currencies from South Korea’s won to the Malaysian ringgit, as fears escalated that the Chinese currency’s slide would drag down the economies of its trading partners.
Investors and traders blamed the turmoil on concerns about China’s huge economy, whose slowing growth and slackening demand has pummeled markets for commodities and industrial exports and led countries around the globe to downgrade their growth outlooks.
On Monday, a closely watched private index of Chinese manufacturing activity suggested the country is starting off the year on shaky ground, fueling investor concern that the slumping industrial sector may be worse off than expected.
The yuan also weakened swiftly Monday, with no sign that authorities would step in to prop it up as they often have in recent months.
Some investors also were worrying about the expected lifting of a six-month ban on Friday that has kept big shareholders from unloading stocks. Chinese regulators implemented the ban during the summer in an attempt to halt a market selloff.
“A large chunk of the market still believes that China is doing much better than it really is,” said Lin-Jing Leong, a bond-fund manager at Aberdeen Asset Management, ADN -2.56 % which manages $429.7 billion in assets. When evidence surfaces that things aren’t looking so good, “panic emerges,” she said.
Monday marked a fresh bout of jitters for Chinese markets, following a rout during the summer in which heavy selling triggered volatility around the globe. Monday’s losses wiped out the bulk of the Shanghai Composite Index’s 9.4% gain for 2015, putting the benchmark up only 1.9% over the past 12 months. They also triggered the brand-new circuit-breaker rules that Chinese authorities put in place this year, to halt the kinds of wild market swings seen last year.
The first trading halt on China’s mainland stock exchanges came shortly before 1:15 p.m., when the CSI 300, a benchmark of the largest 300 stocks listed in Shanghai and Shenzhen, fell 5%, triggering a 15-minute halt under the new rules. A further slide to 7% triggered a second halt under the new system, this time for the remainder of the day.
Some analysts and investors say the circuit breaker could trigger more selling.
“The circuit-breaker system actually creates a downward spiral” as more investors get nervous about trying to get out before others, said Hao Hong, managing director at Bank of Communications Co. “Having this so-called system in place is actually making the selling worse.”
Market watchers say they aren’t expecting Monday’s fall to develop into a full-fledged repeat of last year’s plunge. A big difference this time is that investors have cut back on the use of margin loans, or borrowing money to buy stocks. During last year’s first-half market surge, local investors borrowed money from Chinese brokerages to purchase shares, helping drive the market higher. The subsequent market slide in the summer accelerated as investors sold holdings to repay their brokers.
Since then, official margin loans in China’s mainland market have fallen more than 17%, from a peak of 2.3 trillion yuan ($354 billion) in June. Authorities also clamped down on loans from unofficial “shadow” lenders and took aggressive steps to calm the market, from cracking down on short sellers to tasking government funds to buy shares.
More recently, authorities eased up on some of those measures, including a freeze on initial public offerings, which restarted in December—a sign many investors interpreted as officials’ vote of confidence in the stock market’s stability.
“It’s quite an unexpected situation today,” said Leo Gao, a Shanghai-based fund manager at hedge fund Greenwoods Asset Management, of how steep the losses were. “It’s more panic selling than anything.”
The investor jitters were triggered in part by data released Monday by Caixin Media Co. suggesting that manufacturing in China contracted for the 10th consecutive month. In addition, indexes that track production, new orders and new export orders all declined. That followed the release of China’s official purchasing managers index on New Year’s Day, which showed a measure of factory-floor conditions improving slightly but still indicating that overall activity is shrinking.
The news adds to other worrying data from China, which is expected to reveal later this month whether it hit its growth target of about 7% for 2015. That would be the country’s slowest growth in 25 years, and economists say Beijing could set an even-lower target of around 6.5% for 2016.
“Business is not good,” said Chen Ming, a marketing assistant with Zhuhai Bo Yen Houseware Manufactory Ltd. in southern Guangdong province, which exports stone and metal garden furniture to Europe, the U.S. and Southeast Asia. “The orders are dropping. Many factories are shutting down. Things are getting tougher.”
The weaker currency—the yuan depreciated 2% against the dollar in December—hasn’t helped their business because customers ask for discounts whenever it softens, she said.
Monday’s yuan decline started after China’s central bank guided the currency weaker in the morning, setting the midpoint for the day’s trading range at 6.5032 yuan per dollar, its weakest level since 2011. China lets the currency trade 2% above or below that level in its onshore market.
Although the yuan has been weakening steadily for months, traders say they suspect China has been intervening in the markets to slow the decline—something that didn’t appear to happen Monday.
“There’s been a lot of surprise in the market that China hasn’t slowed this decline [in the yuan] or come in more aggressively,” said Mitul Kotecha, head of rates and foreign-exchange strategy in Asia at Barclays.
The offshore and onshore yuan traded at their weakest levels since April 2011, with the onshore yuan as weak as 6.5381 to one U.S. dollar in late trade Monday.
Currencies in Asia slid across the board against the U.S. dollar. South Korea’s won fell more than 1.4%, the Malaysian ringgit sank 1.2% and the Taiwanese dollar dropped 0.9%, amid fears the Chinese yuan’s slide would drag down these economies.
China Market Plunge Has Investors Wondering About More Turmoil - WSJ
Adam Shell
