By Chao Deng
China shares plunged Tuesday, with investors rushing to sell
late in the session, while other Asian markets succumbed to
tumbling oil prices.
The Shanghai Composite Index, China's main benchmark, finished
down 6.4% at 2749.79--its lowest close since Dec. 1, 2014.
It also marked the index's largest one-day percentage loss since
the Chinese government got rid of a "circuit breaker" mechanism on
Jan. 8. The system, put into place at the beginning of the year,
was blamed for sparking sudden selling instead of achieving the
original goal of curtailing volatility.
The Shanghai index is now down 47% from its June peak.
China's Nasdaq-style ChiNext benchmark plunged 7.8%, while the
Shenzhen Composite Index closed down 7.1%.
"Pessimism became contagious on the market," said Zhang Xin, an
analyst at Guotai Junan Securities. Some investors, he added, had
expected the government to support the market once Shanghai reached
around 2850. Instead, state-backed funds known as the "National
Team"--which have at key pressure points bought shares to prop up
the market--were absent on Tuesday, analysts said.
In Hong Kong, the energy sector plunged 5.7%, dragging down the
Hang Seng Index by 2.5%. The Hang Seng China Enterprises Index of
Chinese firms trading in Hong Kong dropped 3.4% at 7895.16. That
benchmark hit a closing low of 7835 last Thursday, and currently
trades at its lowest levels since 2009.
The Nikkei Stock Average closed down 2.4%, with Tokyo-listed oil
developer Inpex Corp. down 4.3%,
South Korea's Kospi was down 1.2%. Markets in Australia and
India are closed for holidays.
The same concerns that have haunted stocks this year remain: Oil
prices are trading near multiyear lows, and investors are worried
about a slowing China and plans by the U.S. Federal Reserve to
raise interest rates. But increasingly, the oil market is driving
the action.
"The volatility [in oil] is not helping restore confidence back
in the market," said Robert Levine, head of Asian sales and trading
at brokerage CLSA. "It's not easy to put on new bets."
Brent crude oil, which widened its losses through the Asia
trading day, was last down 2.6% at $29.72 a barrel. It has now
fallen more than 20% this year.
But oil's losses haven't helped airlines, which usually benefit
from lower costs on oil. China South Airlines Co. Ltd. and Japan
Airlines Co. Ltd. slipped a fraction on Tuesday, leaving them down
22% and 2% respectively year-to-date.
Worries about slower global growth are overshadowing the
benefits of lower oil, explained Mr. Levine.
No stock exchange in Asia suffered the losses of China, where
the CSI 300, a benchmark of blue chip stocks was down 6%. That
would have been enough to trigger the old circuit breaker, which
kicked in with a 15-minute trading halt if the benchmark fell by
5%, followed by a trading stop for the day if the decline widened
to 7%.
"The stress evident today was in the works for a while," given
investor worries about capital outflows from China, said Bill
Bowler, sales trader at Forsyth Barr Asia Ltd.
Kwanwoo Jun contributed to this article.
Net capital outflows from China have climbed to $550 billion
since mid-2015, according to an estimate Tuesday by Goldman
Sachs.
Margin loans fell for the 17th straight session to 977.5 billion
yuan ($148.5 billion) as of Jan 25, according to Wind Info. These
loans, which spurred the market's climb earlier in the year and
also exasperated its decline starting in June, peaked at a record
2.27 trillion yuan last year.
Mr. Bowler added that investors are coming to the realization
that the government is more reluctant to step in to stop a market
plunge. Earlier this week, minutes from the latest meeting by
China's central bank showed officials focusing their conversation
on maintaining the currency's stability.
"It seemed to imply where the stock market sits on the totem
pole," Mr. Bowler said.
Shanghai's fall Tuesday also came as the Chinese yuan was at its
weakest level against the U.S. dollar since Jan. 14 in the offshore
market, where the currency trades freely. The currency reached 6.62
to one greenback just before the close of Shanghai markets at 3
p.m. local time.
Still, the offshore yuan was roughly unchanged from its levels
Monday, and traders said its relative stability in recent sessions
has helped bring calm to the domestic stock market.
Yifan Xie contributed to this story.
Write to Chao Deng at Chao.Deng@wsj.com
(END) Dow Jones Newswires
January 26, 2016 05:38 ET (10:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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