Markets across Asia experienced more turbulence on Tuesday, with Chinese shares suffering a dramatic fall of more than 6% a day after hundreds of billions of dollars were knocked off global stocks. As the gravity of China’s market woes continued to sink in – following a trading session dubbed “Black Monday” by the country’s official news agency – stock markets in the region were again hit by wild fluctuations.
The Shanghai Composite index fell 6.4% in the first few minutes of trading on Tuesday before clawing back ground later in the day. There was better news from other regional markets, with Japan’s Nikkei making some gains after losing 4.6% the previous session – to some extent easing concerns that the pounding dealt to markets around the world would continue.
Australia’s ASX200, South Korea’s Kospi and Hong Kong’s Hang Seng also showed gains as the trading today went on. The MSCI’s broadest index of Asia-Pacific shares outside Japan went up 1.7% after an initial dip to a three-year low.
Policymakers in Japan called on Chinese authorities to take action to prevent further dramatic slides. The Shanghai Composite’s falls continued despite a US$24bn injection of liquidity by China’s central bank on Tuesday.
Japan is concerned about the yen’s rise against the dollar in recent days, as a stronger Japanese currency eats into the profits of Japanese automakers and other exporters. The finance minister, Taro Aso, said he hoped China would take action to stabilise its economy, but added that Tokyo had no immediate plans to introduce its own stimulus package.
Aso later warned market players against pushing up the yen – seen as a “safe haven” currency” – too much further, saying that its spike against the dollar overnight was problematic for Japan’s economy.
He said there were no plans as yet for co-ordinated action among G7 and G20 countries. “I would say [the yen’s rises overnight] are rough, rather than rapid,” Aso said. “For the economy to grow stably, it’s better for [currency and stock price] moves to be gradual and steady, rather than rough.”
The economics minister, Akira Amari, said the flurry of yen buying was proof of Japan’s sound economic fundamentals, adding that it was up to the Bank of Japan to decide whether or not to ease monetary policy with more quantitative easing to force the yen back down. The yen surged nearly 5% to a seven-month high against the dollar on Monday as investors worried about the slowdown in China bought the relatively risk-free Japanese currency.
The dollar rebounded to the upper 119 yen zone later on Tuesday in Tokyo. At noon the US currency fetched 119.86-87 yen after plummeting to as low as 116.15 yen in New York overnight.
All eyes were on how Chinese markets would respond throughout Tuesday, amid reports that the country’s leadership is running out of ideas to stabilise the world’s second-biggest economy.
China is facing a slowdown in economic growth, the banking system is short of cash and investors are pulling money out of the country. Chinese shares led Monday’s market meltdown, plunging more than 8% to post their biggest losses since 2007.
“A co-ordinated policy response is critical and much of this needs to come from Asian economies,” said Bernard Aw at IG Markets. “A spate of better economic news may help to allay concerns that global growth is not deteriorating. Certainly improvements in the Chinese economy will be welcomed.”
Mark Williams of Capital Economics said investors were “overreacting” to the economic risks in China.
“The surge in prices that started a year ago was speculative, rather than driven by any improvement in fundamentals,” Williams said. “A combination of poor data and policy inaction in China may have triggered today’s market falls but the bigger picture is that we are witnessing the inevitable implosion of an equity market bubble.”
Investors, worried that the Chinese economy is growing at a much slower pace than Beijing’s 7% target for 2015, have also been spooked by uncertainty over US monetary policy. The heavy fall in share prices has tempered expectations that the Federal Reserve will raise interest rates in September, according to some analysts.
“There seems to be no consensus with the Fed on whether they are worried about acting too prematurely or too late,” said Toru Yamamoto, chief bond strategist at Daiwa Securities. On Monday the Dow Jones industrial average briefly fell more than 1,000 points before mounting a recovery. Still, the day ended with a loss of 588 points, the Dow’s eighth-worst single-day point decline.
This article was written by Justin McCurry in Tokyo, for theguardian.com on Tuesday 25th August 2015 06.13 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010