China stocks regain some ground

Chinese shares bounce back slightly, but nerves remain in other Asian markets.

    The Nikkei and most other Asian markets
    continued to slide on Wednesday [Reuters]

    Markets across Asia remained uneasy however, with many falling for a second day.
    Japan's benchmark Nikkei Index fell 2.85 per cent, while stocks in the Philippines tumbled 7.9 per cent.
    Malaysian shares fell 3.3 per cent and Hong Kong's market dropped 2.5 percent.
    On Tuesday, concerns about possible slowdowns in the Chinese and US economies coupled with the sharp fall on the Shanghai exchange sparked Wall Street's worst drop since the September 11 terrorist attacks on New York and Washington.
    The Dow Jones industrial average lost 416 points, or 3.3 per cent.

    Chinese investors had seen shares soar to
    record highs before Tuesday's slump [Reuters]

    Analysts said they expected China's stock market to stabilize and keep climbing over time although further near-term declines were possible given concerns that prices may have risen too precipitously in recent months.
    Tuesday's "sell-off does not reflect any fundamental change in the outlook for China's economy," Yiping Huang and other Citigroup economists said in a report released Wednesday.
    "A sharp contraction in excess liquidity that would reinforce damage in the stock market remains unlikely," it said.
    China's big institutional investors are all state-controlled and would be unlikely to sell so heavily as to completely reverse gains that more than doubled share prices last year.
    With a key Communist Party congress due in the autumn, analysts say the Chinese authorities have a huge stake in keeping the markets on an even keel.
    "They are acting now to nip a nascent bubble in the bud," Stephen Green, senior economist at Standard Chartered Bank in Shanghai told The Associated Press.
    He added, however, that that was challenged by the generally bullish sentiment and the massive amount of funds available for investment.
    "So they have to somehow calibrate the rhetoric and policy actions to keep a lid on this, while not triggering a collapse," Green said.
    Rumours denied

    Worries about efforts to cool China's booming
    economy are fueling investor nerves[Reuters]

    One option could be a capital gains tax on stock investments, although rumors that such a tax may be enacted are thought to have been one factor behind Tuesday's sell-off.
    But on Wednesday the state-owned Shanghai Securities News ran a front-page report denying those rumours.
    China has refrained from imposing a tax on capital gains from stock investments, largely because until last year the markets were languishing near five-year lows.
    The report cited officials saying that the government had little need to impose such a measure now, given that tax revenues soared by 22 per cent last year.
    The exact cause of Tuesday's decline in China though was unclear, given the lack of any significant negative economic or corporate news.
    Some analysts blamed profit taking following recent gains: the market had hit a fresh record high on Monday, with the Shanghai Composite Index closing above 3,000 for the first time.
    Others pointed to comments by Alan Greenspan, the former chairman of the US Federal Reserve, who warned in remarks to a conference in Hong Kong that a recession in the US was "possible" later this year.
    Adding to those factors was a persisting expectation that China might impose further austerity measures, such as an interest rate hike, to cool soaring growth.
    Stocks have shown unusual volatility this year, with the Shanghai index notching one-day drops of 4.9 per cent and 3.7 per cent already this year, before recovering to hit new record highs.
    But there are limits to how far shares are allowed to drop in a single trading day - total single-day gains and losses are capped at 10 per cent.

    SOURCE: Agencies


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