After falls in markets last week, the new week has started with further major declines in Asia, wiping out gains for the year. Emerging-market falls are also having an influence, analysts say.
The Shanghai Composite Index sank 8.4 percent to 3,213.76 at 10:14 a.m. local time (0214 UTC) on Monday. The fall wiped out the Index’s gain for the year. It also dropped below the key 3,500 level that has previously spurred state buying.
Analyst at consultancy CEBM, Qi Yifeng, commented on Monday: “The market is in a downtrend. There’s no good news, stocks are still expensive, and there’s no fresh money coming in.”
Although Chinese authorities said over the weekend they would allow pension funds to buy shares for the first time, there was no cut in reserve ratios which some analysts had anticipated.
Qi added: “With no RRR (reserve requirement) cut over the weekend, the market will directly head south.” The RRR is the fraction of a bank’s total deposits that it must hold in reserve, either in its own vault or deposited at a central bank – lowering its level can inject further capital into the markets.
Nor did Qi think the decision on pension funds would turn market fortunes: “The pension fund news will not help, because the money is limited, you don’t know when the money will come in, and the purchase is not sustainable.”
Mizuho Bank analysts suggested the market correction was also due to declines in emerging markets: “While some blame the correction on the ongoing Chinese slowdown given the poor Chinese flash PMI read,” the Bank wrote in a daily market commentary. “We think it also reflects contagion and position adjustment given the significant declines seen in emerging markets.”
Shanghai’s index had dropped 12 percent last week after data indicated the economic slowdown was deepening.
Official measures intended to arrest the market decline include a $400 billion (348 billion euro) fund for a state agency to buy stocks, a ban on selling by major shareholders and an order to state-owned companies to buy stocks.
In other Asian markets on Monday, Hong Kong’s Hang Seng China Enterprises lost 5.1 percent to reach its lowest level since May. Taiwan’s benchmark index recorded its biggest fall since 1990 as it lost 7.4 percent in early trade. Tokyo’s Nikkei dropped more than 3 percent.