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 Major Chinese stock indexes nosedived more than 7 percent, hitting
their lowest levels since December, following their more than 8
percent plunge on Monday that sent shockwaves through global
financial markets.
China, one of the main engines of the world economy, has overtaken
Greece at the top of the worry list of global investors, who fret
its economy is growing at a much slower pace than the official 7
percent target for 2015.
But unlike in July, when Beijing directed hundreds of billions of
dollars into the market in an unprecedented rescue operation,
policymakers have largely sat on their hands during the latest bout
of turbulence, which began last week.
"Global investors are cannibalizing each other. Calling it a market
disaster is not an overstatement," said Zhou Lin, an analyst at
Huatai Securities.
"The mood of panic is dominating the market ... And I don't see any
signs of meaningful government intervention."
The CSI300 index of the largest listed companies in Shanghai
and Shenzhen dropped 7.1 percent, while the Shanghai Composite Index
collapsed 7.6 percent to close below the psychologically significant
3,000-point level. [.SS]
Underscoring the panic gripping the retail investors who dominate
China's stock markets, all index futures contracts fell by the
maximum 10 percent daily limit, pointing to expectations of even
deeper losses.
KEEP CALM
After the turmoil in China rocked world equity and commodity markets
on Monday, policymakers elsewhere in Asia sought to soothe fears
about the broader impact on the global economy.
"I think it's important that people don't hyperventilate about these
type of things," said Australian Prime Minister Tony Abbott, whose
country is heavily exposed to China, the biggest consumer of its
commodity exports.
"It is not unusual to see stock market corrections. It is not
unusual to see bubbles burst in particular markets and for there to
be some flow-on effect in other stock markets, but the fundamentals
are sound."
Japanese Finance Minister Taro Aso also said Chinese stocks, which
had more than doubled in the six months to May, had been a bubble
that was now bursting.
"There's also suspicion on whether China's official GDP figures
reflect the real state of the economy," he told a news conference
after a cabinet meeting in Tokyo.
After a year of heady gains, Chinese markets have been buffeted by
increasing signs that economic growth is faltering.
This week's vertiginous declines have taken stocks into negative
territory for the year-to-date, although Leland Miller, president of
China Beige Book International, pointed out that Chinese equity
markets have shown little correlation with the real economy - either
on the way up or the way down.
"Previous boom-bust cycles in Chinese stocks have also showed little
or no connection to (apparent) economic performance," said Miller,
whose firm provides anecdotal survey information about China based
on the Fed's "Beige Book" model.
"Investors can be excused for overreacting to China fears, since
without better visibility into the actual condition of China's
economy, most prefer to remain cautious."
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NO RESCUE?
While there is little evidence that the stock market mayhem has
dampened consumer spending so far, concerns about the economy have
intensified after factory activity shrank at its fastest pace in
almost 6-1/2 years and the central bank unexpectedly devalued its
yuan currency earlier this month.
Investors were disappointed by a lack of further central bank action
over the weekend, which some said would have been justified both by
the weak preliminary manufacturing readout for August and by last
week's stock market slide.
"How can investors stand slumps like this?" said a 76-year-old
retired worker in Shanghai, who only gave his surname Gao. "The
government has messed up the market. It's wrong for the government
not to rescue it."
A majority of analysts, however, predict a continued deceleration -
rather than a crash - for China's economy, and dismiss comparisons
with the 2008 Global Financial Crisis or the 1997/98 crisis in Asia.
"The current panic is essentially 'made in China'. The recent data
from other major economies have generally been good and there is
little to justify fears of a major global downturn," wrote
economists at Capital Economics.
"China's recent economic data suggest that growth remains sluggish,
but are not weak enough to justify fears of a hard landing."
Some companies, too, have sought to reassure investors that China's
economy is not about to go over the cliff.
Apple Inc Chief Executive Tim Cook took the rare step on Monday of
commenting on the health of the tech giant's business midway through
a financial quarter.
Before the opening bell on Wall Street, he wrote in an emailed
response to questions that iPhone activations in China had
accelerated over the past few weeks.
"Obviously I can't predict the future, but our performance so far
this quarter is reassuring. Additionally, I continue to believe
China represents an unprecedented opportunity over the long term,"
Cook wrote. (http://cnb.cx/1hCtRMl)
Boeing Co on Tuesday raised its forecast for China's aircraft demand
despite the slowing economy and tumbling stock market.
The U.S. plane maker expects China will buy 6,330 aircraft over the
next 20 years, a 5 percent rise from its last estimate. The planes
would currently be worth nearly $1 trillion.
(Reporting by Samuel Shen, Nathaniel Taplin and Kazanori Takada in
Shanghai, Pete Sweeney in Hong Kong, Devika Krishna Kumar in
Bengaluru, Leika Kihara in Tokyo and Lincoln Feast in Sydney;
Writing by Alex Richardson; Editing by Kim Coghill)
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