Shanghai Leads Market Sell-Off 上海股市下跌
September 1, 2009 The Shanghai composite index plunged 6.75 percent to close out August with a drop of 21.8 percent, the worst performance for the month among the world's major exchanges. Monday's fall, coupled with a drop of nearly 3 percent on Friday, has made for "a huge, huge decline," said Dariusz Kowalczyk, chief investment strategist at SJS Markets in Hong Kong. The overall index was down 192.94 points on Monday to finish at 2,667.75, the lowest closing figure in more than three months. Shares on the Shanghai exchange had rocketed more than 90 percent this year until they began to fall back about three weeks ago. "It has brought the index into bear market territory," Mr. Kowalczyk said. "There's mounting concern over liquidity in the market. This is a big development." Although China's markets are largely closed to foreign investors, movements in Chinese shares have increasingly been rippling into other markets. Shares fell elsewhere in Asia and Europe, and futures indexes in the United States were pointed lower. In Hong Kong, the Hang Seng Index fell 1.9 percent and closed below the 20,000-point plateau. The Hang Seng's loss of 4.1 percent in August marked its first monthly loss since March. In Tokyo, one day after Japanese voters gave a landslide victory to the opposition Democratic Party, the Nikkei 225 index jumped 200 points in early trading but down 42 points, or 0.4 percent. The Kospi index in Seoul was down 1.1 percent. In Europe, the DAX in Frankfurt fell 0.7 percent, while the CAC-40 in Paris was down 0.7 percent. The Euro Stoxx 50, a benchmark for the euro region, fell 0.3 percent to 2,403.99. The London Stock Exchange was closed for a public holiday. Over all, European stock markets appear to be entering a phase of consolidation, a Commerzbank analyst, Andreas Hürkamp, said in a research note. The recent gain in prices and the fact that equity markets are entering the seasonally weak period in September and October is being offset by factors like an improvement in monetary indicators and expectations of better earnings, the report said. "All in all, we expect only a consolidation and not a correction in the coming weeks," Mr. Hürkamp said. "We remain buyers on weaker trading days which should give investors another chance to jump on the stock market bandwagon before equity markets finally move towards our year-end targets." The volatile market swings in China have given some global analysts pause, and some see indications of trouble due to the vulnerable American commercial real estate sector or simply the length of time the rally in stocks has lasted. Art Cashin, the director of floor operations in New York for UBS, said his "gut feeling" about the markets prompted him to sell some stocks last week. "This rally's a little long in the tooth," he said. Chinese banks, acting at the government's behest, unleashed a flood of lending this spring and early summer as part of its efforts to stimulate the economy. Some of the funds were channeled into equity markets, at least temporarily, leading some analysts to warn of an asset bubble. August saw a sharp drop in lending, to about 200 billion renminbi , or $29.3 billion, about half the total for July, Mr. Kowalczyk said, citing a news report in Caijing, the authoritative financial magazine. "The Chinese government cannot be happy with such a drop," he said, referring to the steep and rapid decline of the Shanghai index. "I expect them to soothe the market's nerves about the availability of funds - some guidance, some moderation. The market is quite panicky." The smaller Chinese exchange index in Shenzhen also fared poorly Monday, dropping 7.2 percent. "I think everyone's pretty bearish," said Thomas J. Lee, the chief United States equity strategist at JPMorgan Chase. "People I talk to think there's a 10 percent correction coming." Just before stocks in the United States began their rebound in early March, only 2 percent of investors were optimistic, according to the Daily Sentiment Index, which measures the mood of small traders. The index now shows that about 89 percent are feeling bullish. Robert Prechter, president of Elliott Wave International, a technical analysis firm in Gainesville, Georgia, cut his negative outlook on stocks in late February. "Now," he wrote in an e-mail message, "we are firmly back on the bear side." And, lest we forget, September is traditionally the worst month of the year for American stocks. Jack Healy contributed reporting from New York and Matt Saltmarsh contributed from Paris. | CAC
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