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China fuels fresh Asia equity woes after global rout

AFP/Shanghai
Filed on September 2, 2015 | Last updated on September 2, 2015 at 09.14 am
An investor looks at an electronic board showing stock information at a brokerage house in Hangzhou, Zhejiang province, China.
An investor looks at an electronic board showing stock information at a brokerage house in Hangzhou, Zhejiang province, China.

(Reuters)

The losses followed a dismal day on US and European markets as clouds gathered over the worldwide economy, amid mounting signs of stumbling growth.

Shanghai led a broad Asian equities sell-off on Wednesday, plunging more than four per cent, as further evidence of slowing in China's economy brought a new bout of volatility to global markets.

The losses followed a dismal day on US and European markets as clouds gathered over the worldwide economy, amid mounting signs of stumbling growth.

The Australian dollar - which is heavily linked to demand for the country's abundant natural resources - was plumbing six-year lows with figures out of Canberra showing the economy logged a slower-than-expected 0.2 per cent quarterly expansion.

That came after Canada officially entered recession, hit hard by stubbornly-low oil prices.

Both countries' economies are dependent on the exports of commodities - such as iron ore - that have powered Chinese growth over the last decade.

Adding to tensions are uncertainties about the US Federal Reserve's plans for interest rates ahead of a policy meeting this month, with fears a tightening of monetary policy in the world's number one economy will further dampen the worldwide economy.

"You have worries about the global growth outlook led by Chinese concerns at a time when the Fed is thinking about raising interest rates and that's leaving investors very twitchy," Shane Oliver, a global strategist at AMP Capital Investors Ltd. in Sydney, told Bloomberg News.

"I think we've seen the worst but it's an environment where volatility is likely to continue."

Shanghai's composite index plunged 4.39 per cent at the opening on Wednesday before paring the losses to sit 2.8 per cent lower in late morning trade.

On Tuesday official data showed Chinese factory activity contracted in August, the latest sign that growth in China - which accounts for more than 13 per cent of global GDP - is slowing.

While the Shanghai stock market is somewhat decoupled from the real economy - many analysts and players acknowledge it is akin to gambling - wild ructions there are seen as worrying indications of Beijing's ability to manage structural changes.

Commentators say the high government-spending model of the last three decades is unsustainable, and needs to transition into consumer spending.

They point to the country's huge population as a vast, under-tapped source of demand that could offer opportunities for growth; but fears abound that Communist Party managers are struggling to shepherd the changes.

Washington, whose own recovery from the global financial crisis is still far-from entrenched, will this week urge China to better communicate its policies, when representatives from the elite Group of 20 meet in Turkey.

Treasury Secretary Jacob Lew "will emphasise that, fundamentally, the world needs more demand", said a US official, who spoke on condition of anonymity.

Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co. said Beijing appeared to have been buying blue-chip stocks over recent days in an effort to support the market.

"But investors have lost confidence amid the ongoing deleveraging and the overnight global rout," he said. "The correction isn't over yet."

The Chinese losses were reflected across most of the region, with Hong Kong down 1.80 per cent and Seoul off 0.53 per cent.

Sydney, where several companies with close business ties to China are listed, tumbled 1.32 per cent.

However, Tokyo, which dived almost four per cent Tuesday, was up slighting, adding 0.79 per cent by lunch.

On Wall Street on Tuesday the Dow was down 2.84 per cent, the broader S&P 500 lost 2.96 per cent and the Nasdaq gave up 2.94 per cent.

And in Europe there were losses of 3.03 per cent in London, 2.38 per cent in Frankfurt and 2.40 per cent in Paris

The Australian dollar, which was hovering around 70 US cents early Wednesday morning, briefly slipped to 69.95 US cents, its lowest in six years. The Reserve Bank of Australia on Tuesday kept interest rates at a record-low 2.0 per cent to support growth.

Oil extended its sell-off to a second day. US benchmark West Texas Intermediate for October delivery fell 98 cents, or 2.2 per cent, to $44.43 while Brent slipped 79 cents, or 1.6 per cent, to $48.77.

On Tuesday WTI sank 7.7 per cent and Brent lost 8.5 per cent. Until then the contracts had enjoyed a three-day rally, adding more than 25 per cent, on hopes for an easing of a worldwide supply glut.





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