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China markets stablize after intervention
Stock markets in Asia stabilized on Tuesday after huge losses on the first day of trading for the new year.
Chinese shares were treading water in early Tuesday trading, dipping in and out of negative territory following sharp falls on Monday. The Shanghai Composite was 0.2 per cent higher after a 6.9 per cent drop on Monday, while the tech-focused Shenzhen Composite was down 0.9 per cent, having fallen 8.2 per cent yesterday for its biggest one-day fall since February 2007.
Elsewhere around the region today, most benchmarks were showing signs of stabilisation, and even recovery. Japan’s Nikkei was up 0.4 per cent, while Hong Kong’s Hang Seng was up 0.2 per cent and Korea’s Kospi was ahead by 0.8 per cent. An exception was Australia’s S&P/ASX 200, which was down 0.9 per cent, led lower by the heavyweight banking stocks.
China’s sell-off yesterday caught investors off-guard and risk aversion pushed major equities benchmarks in Asia lower by more than 2 per cent. European stocks were also down more than 2 per cent, while Wall Street was off by more than 1.5 per cent, with investors on both sides of the Atlantic also unnerved by weaker-than-expected readings on manufacturing activity in those regions.
But stocks soon moved back into positive territory thanks to a mixture of policy intervention and hard cash.
China’s central bank injected a massive $20 billion in cash through open market operations in the morning, and forex traders said it also intervened to stabilize the sliding Yuan, which some blamed for aggravating Monday’s decline. Meanwhile, the China Securities Regulatory Commission (CSRC) said it was considering more restrictions on share sales by major shareholders, a major concern for small investors.
China’s intervention in the markets helped calm investor’s nerves, although not totally. But currency markets were also helped to stabilize, as can be seen in the USD/JPY which rebounded from 2-1/2 lows to rise back above 119.00 yen. Also, the Australian dollar halted its slide, with AUD/USD trading at $0.7190 today. China is a major trading for Australia.
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