China Market Meltdown Post-Rally Stock Pullback Reflects Investor Uncertainty …

29 Aug 2015 | Author: | No comments yet »

Calm on Wall Street: A turbulent week ends on a placid note.

London: Five years ago, two of the most attractive investment propositions for British investors collided. Days after China threw the biggest scare into Wall Street in years, U.S. stocks have come surging back and ended the week Friday on a placid note that suggested the worst may be over for now.China’s shares surged on Friday amid suspected government buying, but the week’s volatile trading still puts the index down nearly 8 per cent in that time. The Dow Jones industrial average fell a scant 11.76 points Friday, or 0.1 percent, to 16,643.01, capping a week that saw stomach-churning losses and gains of around 600 points per day.

In one wild week, China became the epicenter of a global sell-off, with a five-session crash starting last Thursday triggering steep losses in US and European stocks — only to be followed by surges. Mr Bolton’s legacy fund — now run by Australian small-cap specialist Dale Nicholls — today trades on the London Stock Exchange at a wide 20.5 per cent discount to net asset value, depressed by China’s surprise currency devaluation this week and volatility on the Shanghai stock market. To quiet worries about its slowing growth, Beijing took several easing measures this week to get its economy back in gear, including an interest-rate cut and liquidity injections. The dwindling number of China bulls argue that while its economic growth has slowed to 7 per cent, this level will be sustained as long as the country remains closely controlled by Beijing policymakers who determine everything from bank rates to birth rates. “You can see the Chinese government is trying to control the growth rate,” said Brewin Dolphin Asia Pacific analyst Mike Paul, referring to measures such as Beijing’s clampdown on so-called shadow lending by funds and trust companies. “You can argue they can raise it again.” In 2009, to shelter China’s economy from the global recession sparked by the sub-prime lending crisis in the US, Beijing prompted what could be a sub-prime crisis of its own. Beijing’s efforts — and robust US growth data — steadied markets in the region and overseas by the end of the week, and arrested a slide that took Shanghai stocks down as much as 43 per cent from their June peak.

Before the six-day losing streak had ended, the Dow had plummeted 1,900 points and the S&P 500 was undergoing its first “correction,” a decline of 10 percent or more, in nearly four years. But concerns linger about the sustainability of China’s recovery, authorities’ role in the market and the timing of a rise in US interest rates, which could sap funds from the region as investors seek higher-yielding assets elsewhere.

But stocks soared at midweek, cutting the Dow’s losses nearly in half, in a rally analysts attributed to bargain-hunting, signs that the Federal Reserve may hold off raising interest rates this fall, and a new report that said the U.S. economy is growing at a more robust rate than previously believed. The Shanghai Composite Index suffered its second-straight week of losses and its third month of declines after a yearlong rally took the index to seven-plus year highs. Still, the concerns that triggered the sell-off remain: slumping oil prices, a slowing Chinese economy, weak corporate earnings forecasts and uncertainty over interest rates. “For the last few years, let’s face it, there’s been very little volatility,” said JJ Kinahan, TD Ameritrade’s chief strategist. “We’ve had a very impressive rally. Not that we can’t go higher, but it’s not going to be an easy path to get there.” Despite the bounce-back this week, stocks are on course for their worst monthly performance in more than three years. Hong Kong’s Hang Seng Index, which offers shares in many of the same companies that can be purchased in freely exchangeable Hong Kong dollars, has fallen 13 per cent.

Some even suspected that officials wanted to give investors something to cheer ahead of a parade commemorating the 70th anniversary of World War II next week. Because he recently left his job, Chang has to sell investments he bought with stock options within 90 days — something he can’t do now without taking a big loss. And 4 for national holiday. “If the ‘National Team’ has returned to the stock market, it does seem poorly timed,” wrote Angus Nicholson, an analyst at IG, referring to the team of government agencies, state-backed companies and stockbrokers that ostensibly steps in to fix the market. “Earlier action could have halted the record losses seen since last week, but any action now would upset the market finding its own natural bottom, which would be far healthier for the index in the long term. Federal Reserve Vice Chairman Stanley Fischer said Friday that before the recent turbulence, there was a “pretty strong case” for raising rates in September.

Late afternoon Thursday, analysts said Beijing was once again buying stocks to support the market, after what they described as a hiatus to let market forces determine stock prices. The other listed option for UK investors is the JPMorgan Chinese Investment Trust, which focuses more on large blue-chip companies that dominate China’s economy.

You Jun, vice minister of human resources and social security, told a briefing that there will be around 2 trillion yuan ($US312 billion) in pension funds available for investment in stocks and stock funds, according to the newspaper’s website. This fund is also highly geared, at around 116 per cent, which its client director James Glover said is because there are multiple “opportunities” from the “pullback” in equity markets.

The vice minister said that the investments weren’t aimed at boosting the domestic stock market but were part of a longer-term plan to preserve the value of pension-fund assets. “There’s so much positive in Asia because of lower energy costs,” said Arthur Kwong, head of Asia ex-Japan equities at BNP Paribas Investment Partners, which manages around €552 billion ($US620.8 billion) globally. He said that his firm has bought the region’s shares in the past five sessions, including in India, which he believes has been excessively sold off in the broad rout.

Currencies from South Korea to New Zealand strengthened after hitting multiyear lows earlier in the week on worries of lower Chinese demand for goods of exporting nations.

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