Stocks see biggest fall in 10 years
China's stock market plummeted from record highs Tuesday as investors took profits when concerns arose that the Chinese government may try to temper its ballooning economy by raising interest rates again or reducing more of the money available for lending.
"Corrections usually happen because of a catalyst, and this may be it," said Ed Peters, chief investment officer at PanAgora Asset Management. "The move in China was a surprise, and when a major market has a shock it ripples through the rest of the market. With all the trade that goes on with China, there tends to be a knee-jerk reaction with that kind of drop."
The Shanghai Composite Index tumbled 8.8 percent to close at 2,771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since Chinese share prices doubled last year as investors poured money into the market after the completion of shareholding reforms, trading in Shanghai has been very volatile.
The Shenzhen Composite Index sank 8.54 percent on Tuesday to 709.81.
On Monday, the Shanghai index gained 1.4 percent to 3,040.60, extending a spate of record high closes.
Tuesday's fall in the Chinese market was caused not by any bad figures, or gloomy forecast. While some analysts cited pressure for profit taking as the major reason, others said the loss of about 800 billion yuan ($102 billion) in market capitalization was primarily triggered by a rumor about capital gains tax.
Well-renowned economist Wu Jinglian, a senior fellow with the Development Research Center of the State Council, has long called for collection of such a tax.
China Daily had no way to confirm that the government may be planning to levy a capital gains tax on investors but none of the government agencies has officially declared it was just a rumor either.
The government does not usually issue an official statement about something it was not doing or planning to do, according to Li Zhenning, president of Shanghai Rising Fund Management Co. He predicted that the market would pick up after one or two days.
The scale of the decline, however, surprised many.
He Jun, vice-president of Anbound Consultation Co, said: "Although the market index was at a high level and people were expecting a correction, what happened was astonishing."
The Shanghai index soared 130 percent last year.
He Jun said he had heard market rumors about a possible capital gains tax.
"This could have been a major trigger for such a plummet, promoting profit-taking funds to leave the market," he said.
But he believed the market would continue to be bullish this year.
Some analysts looked to the fundamentals to explain the unexpected fall.
Dong Chen, a senior analyst at CITIC China Securities, said: "Investors will unlikely be satisfied by the annual reports to be released by many listed companies. Their performance will provide no support for the high share prices."
Sources from Xiang Cai Securities said that the P/E ratio of the yuan-denominated A shares was double that of the world's average, indicating growing risks.
So yesterday's correction, Dong said, was "a good thing because it will pave the way for a healthy market in the long-run".
So long as China's macro-economic environment remains sound, investors still have a good chance to earn from the A-share market, analysts said.
Despite worries about too high share prices and management problems at large State-owned companies, analysts interviewed by China Daily all said the market stands a good chance this year.
Stephen Green, senior economist with the Global Research Division of Standard Chartered Bank, said the plunge has nothing to do with the overall economic situation.
"I don't think the drop is caused by the central bank's latest reserve ratio hike," he said.
The People's Bank of China, the central bank, required that commercial banks set aside 10 percent of their deposits starting February 25, up from 9.5 percent.
But Green said he sees at least one interest rate hike in the pipeline.
"You can lock some of the funds up in the banking system, but sooner or later if you want to control credit growth and investment, you simply have to make borrowing more expensive."
Globle Markets Plunge
US stocks had their worst day of trading since the Sept. 11, 2001, terrorist attacks, hurtling the Dow Jones industrials down more than 400 points on a worldwide tide of concern that the US and Chinese economies are stumbling and that share prices have become overinflated. The steepness of the market's drop, as well as its global breadth, signaled a possible correction after a long period of stable and steadily rising stock markets that had not been shaken by such a volatile day of trading in several years.
A 9 percent slide in Chinese stocks set the tone for US trading. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in, and also as a computer glitch caused a delay in the recording of a large number of trades.
The Dow fell 546.02, or 4.3 percent, to 12,086.06 before recovering some ground in the last hour of trading to close down 416.02, or 3.29 percent, at 12,216.24, leaving it in negative territory for the year. Because the worst of the plunge took place after 2:30 pm, the New York Stock Exchange's trading limits, designed to halt such precipitous moves, were not activated.
The decline was the Dow's worst since Sept. 17, 2001, the first trading day after the terror attacks, when the blue chips closed down 684.81, or 7.13 percent.
The drop hit every sector across the market, and a total of US$632 billion was lost in total in US stocks on Tuesday, according to Standard & Poor's Corp. Riskier issues such as small-cap and technology stocks suffered some of the biggest declines, but big industrial companies, those that are often hurt the most in an economic downturn, also were pummeled, with raw materials producers among the hardest hit.
But analysts who have been expecting a pullback after a huge rally that began last October and sent the Dow to a series of record highs, were unfazed by Tuesday's drop.
"This corrective consolidation phase isn't just going to be one day, but we don't believe this is going to be a bear market," said Bob Doll, BlackRock's global chief investment officer of equities.
Some investors also tried to put Tuesday's slide into a longer-term perspective.
All who invest should feel grateful that we've had a great run for the last 12 to 18 months," said Joel Kleinman, a Washington, DC attorney, adding that he has learned to not read too much into any short-term ups and downs. "This is another day in the market."
Still, traders' dwindling confidence was knocked down further by data showing that the economy may be decelerating more than anticipated. A US Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the US economy, just a day after former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession.
"It looks more and more like the economy is a slow growth economy," said Michael Strauss, chief economist at Commonfund. "Moderate economic growth is good -- an abrupt stop in economic growth scares people."
The market had been expecting the US government on Wednesday to revise its estimate of fourth-quarter GDP growth down to an annual rate of about 2.3 percent from an initial forecast of 3.5 percent, and grew increasingly nervous on Tuesday that the figure could come in even lower.
But a growing feeling that Wall Street, which has had a big run-up since October, was due for a correction also played into Tuesday's decline.
"I think that the market was prepared to pull back. The constellation of issues that were worrying the market came to a head," said Quincy Krosby, chief investment strategist at The Hartford.
Still, the market will need to pull back further before its decline can officially be called a correction, which is considered a 10 percent decline in a bull market. Just a week ago, the Dow had reached new closing and trading highs, rising as high as 12,795.92; it's now down 4.5 percent from that level.
The broader Standard & Poor's 500 index fell 50.33, or 3.47 percent, Tuesday to 1,399.04, and the tech-dominated Nasdaq composite index was off 96.65, or 3.86 percent, at 2,407.87. Both indexes have also turned negative for the year.
The Russell 2000 index of smaller companies dropped 31.03, or 3.77 percent, to 792.66.
Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, and Malaysia's Kuala Lumpur Composite Index fell 2.8 percent. Japan's Nikkei stock average fell a more moderate 0.52 percent, but European markets were rattled -- Britain's FTSE 100 lost 2.31 percent, Germany's DAX index dropped 2.96 percent, and France's CAC-40 fell 3.02 percent.
Bond prices shot higher as investors bought into the safe-haven Treasury market, pushing the yield on the benchmark 10-year Treasury briefly note down to 4.47 percent, its lowest level so far this year, from 4.63 percent late Monday; the yield settled at 4.52 percent.
The durable goods drop raised the chance of the US Federal Reserve easing interest rates later in the year -- a possibility that makes the bond market an attractive place to be right now.
The hope for slowing inflation could be dashed, though, if energy costs keep rising. Oil prices initially fell Tuesday on worries that Chinese demand could be dampened should its economy slow down, but later rose on escalating tensions in the Middle East. Light, sweet crude for April delivery added 7 cents to settle at $61.46 a barrel on the New York Mercantile Exchange.
The dollar slipped against other major currencies, while gold also fell.
"Corrections usually happen because of a catalyst, and this may be it," said Ed Peters, chief investment officer at PanAgora Asset Management. "The move in China was a surprise, and when a major market has a shock it ripples through the rest of the market. With all the trade that goes on with China, there tends to be a knee-jerk reaction with that kind of drop."
The Shanghai Composite Index tumbled 8.8 percent to close at 2,771.79, its biggest decline since it fell 8.9 percent on Feb. 18, 1997. Since Chinese share prices doubled last year as investors poured money into the market after the completion of shareholding reforms, trading in Shanghai has been very volatile.
The Shenzhen Composite Index sank 8.54 percent on Tuesday to 709.81.
On Monday, the Shanghai index gained 1.4 percent to 3,040.60, extending a spate of record high closes.
Tuesday's fall in the Chinese market was caused not by any bad figures, or gloomy forecast. While some analysts cited pressure for profit taking as the major reason, others said the loss of about 800 billion yuan ($102 billion) in market capitalization was primarily triggered by a rumor about capital gains tax.
Well-renowned economist Wu Jinglian, a senior fellow with the Development Research Center of the State Council, has long called for collection of such a tax.
China Daily had no way to confirm that the government may be planning to levy a capital gains tax on investors but none of the government agencies has officially declared it was just a rumor either.
The government does not usually issue an official statement about something it was not doing or planning to do, according to Li Zhenning, president of Shanghai Rising Fund Management Co. He predicted that the market would pick up after one or two days.
The scale of the decline, however, surprised many.
He Jun, vice-president of Anbound Consultation Co, said: "Although the market index was at a high level and people were expecting a correction, what happened was astonishing."
The Shanghai index soared 130 percent last year.
He Jun said he had heard market rumors about a possible capital gains tax.
"This could have been a major trigger for such a plummet, promoting profit-taking funds to leave the market," he said.
But he believed the market would continue to be bullish this year.
Some analysts looked to the fundamentals to explain the unexpected fall.
Dong Chen, a senior analyst at CITIC China Securities, said: "Investors will unlikely be satisfied by the annual reports to be released by many listed companies. Their performance will provide no support for the high share prices."
Sources from Xiang Cai Securities said that the P/E ratio of the yuan-denominated A shares was double that of the world's average, indicating growing risks.
So yesterday's correction, Dong said, was "a good thing because it will pave the way for a healthy market in the long-run".
So long as China's macro-economic environment remains sound, investors still have a good chance to earn from the A-share market, analysts said.
Despite worries about too high share prices and management problems at large State-owned companies, analysts interviewed by China Daily all said the market stands a good chance this year.
Stephen Green, senior economist with the Global Research Division of Standard Chartered Bank, said the plunge has nothing to do with the overall economic situation.
"I don't think the drop is caused by the central bank's latest reserve ratio hike," he said.
The People's Bank of China, the central bank, required that commercial banks set aside 10 percent of their deposits starting February 25, up from 9.5 percent.
But Green said he sees at least one interest rate hike in the pipeline.
"You can lock some of the funds up in the banking system, but sooner or later if you want to control credit growth and investment, you simply have to make borrowing more expensive."
Globle Markets Plunge
US stocks had their worst day of trading since the Sept. 11, 2001, terrorist attacks, hurtling the Dow Jones industrials down more than 400 points on a worldwide tide of concern that the US and Chinese economies are stumbling and that share prices have become overinflated. The steepness of the market's drop, as well as its global breadth, signaled a possible correction after a long period of stable and steadily rising stock markets that had not been shaken by such a volatile day of trading in several years.
A 9 percent slide in Chinese stocks set the tone for US trading. The Dow began the day falling sharply, and the decline accelerated throughout the course of the session before stocks took a huge plunge in late afternoon as computer-driven sell programs kicked in, and also as a computer glitch caused a delay in the recording of a large number of trades.
The Dow fell 546.02, or 4.3 percent, to 12,086.06 before recovering some ground in the last hour of trading to close down 416.02, or 3.29 percent, at 12,216.24, leaving it in negative territory for the year. Because the worst of the plunge took place after 2:30 pm, the New York Stock Exchange's trading limits, designed to halt such precipitous moves, were not activated.
The decline was the Dow's worst since Sept. 17, 2001, the first trading day after the terror attacks, when the blue chips closed down 684.81, or 7.13 percent.
The drop hit every sector across the market, and a total of US$632 billion was lost in total in US stocks on Tuesday, according to Standard & Poor's Corp. Riskier issues such as small-cap and technology stocks suffered some of the biggest declines, but big industrial companies, those that are often hurt the most in an economic downturn, also were pummeled, with raw materials producers among the hardest hit.
But analysts who have been expecting a pullback after a huge rally that began last October and sent the Dow to a series of record highs, were unfazed by Tuesday's drop.
"This corrective consolidation phase isn't just going to be one day, but we don't believe this is going to be a bear market," said Bob Doll, BlackRock's global chief investment officer of equities.
Some investors also tried to put Tuesday's slide into a longer-term perspective.
All who invest should feel grateful that we've had a great run for the last 12 to 18 months," said Joel Kleinman, a Washington, DC attorney, adding that he has learned to not read too much into any short-term ups and downs. "This is another day in the market."
Still, traders' dwindling confidence was knocked down further by data showing that the economy may be decelerating more than anticipated. A US Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the US economy, just a day after former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession.
"It looks more and more like the economy is a slow growth economy," said Michael Strauss, chief economist at Commonfund. "Moderate economic growth is good -- an abrupt stop in economic growth scares people."
The market had been expecting the US government on Wednesday to revise its estimate of fourth-quarter GDP growth down to an annual rate of about 2.3 percent from an initial forecast of 3.5 percent, and grew increasingly nervous on Tuesday that the figure could come in even lower.
But a growing feeling that Wall Street, which has had a big run-up since October, was due for a correction also played into Tuesday's decline.
"I think that the market was prepared to pull back. The constellation of issues that were worrying the market came to a head," said Quincy Krosby, chief investment strategist at The Hartford.
Still, the market will need to pull back further before its decline can officially be called a correction, which is considered a 10 percent decline in a bull market. Just a week ago, the Dow had reached new closing and trading highs, rising as high as 12,795.92; it's now down 4.5 percent from that level.
The broader Standard & Poor's 500 index fell 50.33, or 3.47 percent, Tuesday to 1,399.04, and the tech-dominated Nasdaq composite index was off 96.65, or 3.86 percent, at 2,407.87. Both indexes have also turned negative for the year.
The Russell 2000 index of smaller companies dropped 31.03, or 3.77 percent, to 792.66.
Hong Kong's benchmark Hang Seng Index dropped 1.8 percent, and Malaysia's Kuala Lumpur Composite Index fell 2.8 percent. Japan's Nikkei stock average fell a more moderate 0.52 percent, but European markets were rattled -- Britain's FTSE 100 lost 2.31 percent, Germany's DAX index dropped 2.96 percent, and France's CAC-40 fell 3.02 percent.
Bond prices shot higher as investors bought into the safe-haven Treasury market, pushing the yield on the benchmark 10-year Treasury briefly note down to 4.47 percent, its lowest level so far this year, from 4.63 percent late Monday; the yield settled at 4.52 percent.
The durable goods drop raised the chance of the US Federal Reserve easing interest rates later in the year -- a possibility that makes the bond market an attractive place to be right now.
The hope for slowing inflation could be dashed, though, if energy costs keep rising. Oil prices initially fell Tuesday on worries that Chinese demand could be dampened should its economy slow down, but later rose on escalating tensions in the Middle East. Light, sweet crude for April delivery added 7 cents to settle at $61.46 a barrel on the New York Mercantile Exchange.
The dollar slipped against other major currencies, while gold also fell.
posted by wufeifei | 11:38 PM
0 Comments:
Post a Comment
<< Home