Chinese Shrug Off Losses as Market Swings Back
Chinese Shrug Off Losses as Market Swings Back
SHANGHAI, Feb. 28 — Seated before a row of computer terminals flickering with stock charts in a large brokerage house in this bustling city, Li Ruichang insisted he was not too worried about Tuesday’s huge stock sell-off.
“Things like that happen,” said Mr. Li, a 63-year-old engineer. “But I’m not worried about a crash. After a five-year-long bear market, the bull market shouldn’t end that fast.”
Mr. Li, a self-professed speculator, said the Chinese stock market was like a giant government-regulated “slot machine.”
Little did Mr. Li know how this regulated “slot machine” of a market, which fell nearly 9 percent Tuesday, set off a global sell-off in stocks. It recovered a substantial amount of those losses on Wednesday.
Most international markets traded off sharply Wednesday for a second day, with losses of 2 percent or more on many major Asian exchanges and 1 percent declines common in Europe. But the New York Stock Exchange began advancing from the opening bell at 9:30 a.m.; the Dow Jones industrial index closed 0.43 percent higher at 12,268.63.
China indirectly reassured its markets Wednesday, with its state-controlled media reporting that the government might allow greater foreign investment in Chinese stocks — up to 10 percent of the market — and would not impose capital gains taxes on stocks soon.
But while China’s markets rebounded, markets around Asia fell in reaction to the sharp drop on Wall Street and to disappointing figures on the American economy.
Investors here say there is no clear explanation for the plunge in the benchmark Shanghai composite index, which fell 8.8 percent on Tuesday, or for that matter Wednesday’s partial recovery. The index gained 3.9 percent to end at 2,881.07, about 100 points above where it was at the start of February. It is still up about 120 percent from a year ago.
“Yesterday was very normal,” said Wu Xiaowei, a 50-year-old who calls himself a professional investor. “It’s a rule that in a bullish market the stock index always falls fast in an adjustment period.”
[On Thurday, markets in Shanghai opened lower on concerns that stocks were too costly. In Tokyo, the Nikkei dropped more than 1.5 pecent as investors continued to be worried about the United States economy.]
Some investors blamed rumors about new government taxes for Tuesday’s steep market decline; others called it profit taking; and still others said many investors had celebrated too much on the first day of trading after the Chinese New Year by bidding shares up to record highs on Monday.
The managing director general of the Asian Development Bank, Rajat M. Nag, said in an interview in Hong Kong on Wednesday morning that the fundamentals of most Asian economies remained strong.
But he cautioned that the region remained dependent on exports to markets, especially the United States, where growth prospects were cloudy. China is among the most dependent of all, he said, with international trade in goods equal to 65 percent of its economic output last year.
“We are still fairly bullish on the Chinese economy’s growth potential,” Mr. Nag said, but its dependence on exports “is a vulnerability.”
One reason is that China has managed its currency, the yuan, limiting its rise against the dollar to keep exports strong. In doing so, Chinese officials may have indirectly helped create what some experts say are speculative bubbles in China’s stock and real estate markets.
The government has bought dollars from exporters and foreign investors on a huge scale, issuing hundreds of billions of yuan notes to pay for them — currency that otherwise might not have entered circulation.
The government has tried to contain the potential inflationary effect of issuing so much currency by having banks and individuals buy government bonds, then effectively tearing up the yuan notes. Since not all the yuan can be clawed back this way, many of them end up in the stock and property markets instead, driving up prices.
This excess of cash helps feed a bullish attitude toward the economy held by many Chinese individual investors, who still keep much of their money in bank accounts and saw Wednesday as a buying opportunity.
“I lost some money yesterday, but this morning I gained some,” said Qin Changhai, a 37-year-old shoe salesman turned day trader. “You see, this is what we go through every day.”
Other Asian markets initially turned their backs on the recovery in China’s markets. Instead, Asian investors reacted to potential weaknesses in the American economy. Shares of Asian companies that export to the United States, like Toyota, suffered heavy losses Wednesday after the Commerce Department’s report that orders for durable goods fell 7.8 percent in January.
“There is a worry that U.S. consumption could slow substantially, and that is a much bigger factor than China’s stock market,” the chief Asia economist in the Hong Kong offices of Credit Suisse, Tao Dong, said.
On top of concerns about a slump in American demand, analysts said the prospect of cuts in interest rates by the Federal Reserve to head off such a slump was also worrisome. Many investors in Japan appeared to be watching for signs of whether the sell-off would continue in New York.
“What comes next here really depends on New York, not Shanghai,” said Eiji Kinouchi, chief technical analyst at the research arm of Daiwa Securities in Tokyo.
The worst performer in Asia on Wednesday was the Philippine market, which fell nearly 8 percent. The broad extent of the decline in Asia underlined the region’s deepening connection to global financial markets and growing reliance on exports to the industrialized world.
“Every morning, most traders will get a fix on how the Asian markets are trading and how did the Nasdaq close — I think people have gotten more globalized,” said Sandeep Nanda, head of research at Sharekhan, a large retail brokerage firm in India.
Tim Condon, the head of financial markets research at ING Financial Markets in Singapore, said that the most significant feature of the worldwide drop was that it was the first such global shock to financial markets to emerge from mainland China.
In Japan, one of the biggest fears for investors is the possibility of rate cuts by the Federal Reserve, which could start narrowing the gap with Japan’s rock-bottom rates. Japanese overnight lending rates are 0.5 percent, compared with 5.25 percent in the United States.
If the gap shrinks, it could slow or halt the so-called yen carry trade, in which investors borrow hundreds of billions of dollars’ worth of yen to invest in stock markets around the world in search of higher returns.
If this flow of money stops, or reverses, it could prompt larger sell-offs on Wall Street and drive the yen even higher, hurting Japanese exporters even more, analysts said.
“Bernanke holds the trigger,” said Kiichi Fujita, a strategist in Tokyo for Nomura Securities, referring to the Fed’s chairman, Ben S. Bernanke. “If he cuts interest rates in America, the worry is that the yen carry trade will unwind.”
Back in China, though, state-controlled newspapers put on a positive spin Wednesday, reporting that more than 188,000 stock market accounts were opened. In the English-language Shanghai Daily, news of the stock slide was placed, perhaps somewhat deliberately, on Page 2.
After shares collapsed in 1996, the government put in circuit breakers that restricted the market from falling more than 10 percent in a single session. Worried about a stock market bubble, government officials recently warned investors about “blind optimism” in the stock market.
“The government doesn’t want to see this go up or down too quickly,” said Frank M. Song, director of the Center for China Financial Research at the University of Hong Kong. “Their goal is to try to maintain stable growth.”
Stability seemed to rule again Wednesday at the Liaoning Securities brokerage house, where retirees lounged around, their feet up on the tables, watching the market go up.
Ji Manli, watching a computer screen, said she had done “pretty well.” Her return was 300 percent.
“But I still think I didn’t do well enough,” said Ms. Ji, 67, a retired electrical engineer. “When some stocks hit their highs, I sold them. Other people did much better.”
posted by B at 5:17 PM
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