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Battered by a late selling frenzy, the benchmark Shanghai Composite
Index <.SSEC> ended down 6.4 percent at 2749.79 points, its lowest
close since Dec. 1, 2014.
The CSI300 index <.CSI300> of the largest listed companies in
Shanghai and Shenzhen dropped 6 percent 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 percent 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 percent. 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 sight，while 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.
YUAN STRAINS
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.
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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 percent by volume last
year.
Other stock markets in Asia were also down on Tuesday, with Japan's
Nikkei <.N225> dropping 2.4 percent and MSCI's broadest index of
Asia-Pacific shares outside Japan <.MIAPJ0000PUS> down 1.5 percent,
extending earlier losses after the late slide in China. [MKTS/GLOB]
All eyes will be on a U.S. 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.
($1 = 6.5782 Chinese yuan renminbi)
(Additional reporting by Nathaniel Taplin; Writing by Will Waterman;
Editing by Shri Navaratnam and Kim Coghill)
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