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China stocks plunge, other markets eye Greece moves

China stocks plunge, other markets eye Greece moves

Athens creditors will not free up billions in bailout money

By (Agencies)

Published: Sat 27 Jun 2015, 11:36 PM

Last updated: Wed 8 Jul 2015, 3:06 PM

Hong Kong — Chinese stocks plunged on Friday as panicked investors rushed to sell over fears that the market’s strong gains recently might have been overdone. Elsewhere, stocks traded softly as the standoff between Greece and its international creditors appeared little closer to being resolved.

In Europe, the FTSE 100 index of leading British shares was down 0.6 per cent at 6,770, while Germany’s DAX fell 0.1 per cent to 11,471. The CAC-40 in France bucked the trend, trading 0.5 per cent higher at 5,064.

Wall Street was poised for a steady opening with Dow futures and the broader S&P 500 futures up 0.2 per cent.

Global investors are watching closely as Greek debt talks go down to the wire. On Thursday, a key meeting of eurozone finance ministers on Greece’s rescue package broke up without agreement.

The 19 ministers are due to meet again on Saturday. Greece’s creditors will not free up billions in bailout money until there’s an agreement over economic reforms and budget cuts. Greece needs a deal to pay €1.6 billion ($1.8 billion) to the International Monetary Fund due Tuesday. Failing to do so would put the country on a possible path toward default and exit from the euro.

“While these deadlines can quite often be taken with a pinch of salt, Greece has literally run out of time on this occasion,” said Craig Erlam, senior market analyst at OANDA. “If we see a Greek deal then there will be cause for celebration while no deal could create panic.”

While Greece has been the main driver in financial markets over recent weeks, worries over China have risen up the list of concerns. On Friday, Chinese stocks plunged. After a sizzling rally that more than doubled Shanghai’s benchmark index over the past year, investors are now heading for the exit.

One factor appears to be authorities tightening rules on margin financing, which involves using borrowed money to buy stocks. The market’s drop may also be exacerbated by the herd mentality of retail investors, who play an outsize role in China’s markets, or by margin investors being forced to sell off to meet margin calls.

“Although I continue to be optimistic about the longer-term trend of the China markets, it’s clear that we are in a sharp correction phase,” said Bernard Aw of IG Markets in Singapore. He said up until Thursday, $1.2 trillion had been wiped off of China’s equity markets since they peaked June 14 at $10 trillion.

The Shanghai Composite Index in mainland China plunged 7.4 per cent to close at 4,192.87, bringing its losses for the week to 12.4 per cent. The smaller Shenzhen Composite Index tumbled 7.9 per cent to 2,502.96.

Chinese worries dented sentiment across Asia, particularly in Hong Kong, where the Hang Seng index ended 1.8 per cent lower at 26,663.87. Japan’s benchmark Nikkei 225 index lost 0.3 per cent to 20,706.15 while South Korea’s Kospi gained 0.3 per cent to 2,090.26. Australia’s S&P/ASX 200 shed 1.5 per cent to 5,545.90.

Benchmark US crude oil fell 24 cents to $59.46 a barrel in electronic trading on the New York Mercantile Exchange. Brent crude, a benchmark for international oils used by many US refineries, fell 3 cents to $63.17 in London.

The euro was flat at $1.1201 while the dollar was up 0.1 per cent at 123.69 yen. Meanwhile, Indian stocks dropped paring a weekly advance for the benchmark equity index, after days of talks failed to yield a breakthrough in the Greece debt crisis.

The S&P BSE Sensex lost 0.3 percent to 27,811.84 at the close in Mumbai, reducing its second straight weekly gain to 1.8 percent.

“The market had a strong rally, so we can see a corrective phase in the next few days unless there is a clear resolution of the Greek issue,” David Pezarkar, the Mumbai-based chief investment officer for equities at BOI AXA Investment Managers Pvt., said in an interview with Bloomberg TV India on Friday.

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