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Business / Markets

Equities continue on a roller coaster ride

By Luo Weiteng in Hong Kong and Wang Mingjie in London (China Daily) Updated: 2015-08-26 07:24

Mainland shares fall further as Hong Kong recovers from losses Equities continued their wild swings on Tuesday, with shares falling by another 7.63 percent in Shanghai and bouncing back from losses in Hong Kong.

The benchmark Shanghai Composite Index dropped 244.94 points to close at 2,964.97 on Tuesday and fell below the psychologically important level of 3,000 for the first time since December last year. Nearly 800 stocks fell below the daily 10 percent limit.

Tuesday's decline followed the vast sell-offs in global financial markets, triggered by the 8.49 percent fall on Monday in Shanghai.

The Shanghai Composite Index has declined 42 percent from its closing peak on June 12 and wiped off all gains year to date.

"There are all the usual arguments about the economy slowing and valuations, but the real reason for such a turnaround is sentiment," said Justin Stewart, co-founder of Seven Investment Management LLP, a London-based financial company.

"Confidence has just evaporated. There was no new news, no new key economic data, but the attitude changed. The old line always used to be whether the glass was half full or half empty - for many frightened investors, they felt that the glass had cracked," Stewart told China Daily.

Some economists and analysts even doubt whether the turmoil gripping China's equity markets really reflects the broader condition of the world's second-largest economy.

"The collapse of the equity bubble tells us next to nothing about the state of China's economy," Mark Williams, chief Asia economist at Capital Economics, wrote in a research note.

"In fact, recent data have been more positive than the headlines might suggest, with large parts of the economy still looking strong. Policymakers in China also have the luxury of still being able to loosen policy if necessary," he said.

Though many global bourses are under pressure, Hong Kong managed a smart recovery and pared losses. The benchmark Hang Seng Index, which lost 5.2 percent on Monday, finished 0.72 percent higher at 21,404.96 points after falling more than 0.6 percent in early trade on Tuesday.

Chief Executive Leung Chun-ying cautioned on Tuesday morning that investors should play it safe in the local stock market where external economic downturns could continue to dampen investor sentiment and volatility is apt to be the norm in the short run.

But Leung emphasized he has confidence in Hong Kong's market regulation and the city's stock market regulators will keep a close watch on the market conditions.

As the equity market turmoil across Asia is evoking comparison to the 1997 Asian financial crisis, Leung believed the two situations are by no means comparable since Asian economies have learned the lessons of the 1997 financial crash and governments are more competent in market regulation than they used to be 18 years ago.

Tsang Wing-kin, research director at CSC Securities (Hong Kong) Ltd, warned that the Hong Kong stock market, feeling pressures from a cooling Chinese mainland economy and a correction in US equity markets, can hardly get rid of a weakening trend and is likely to take another stumble in the short term.

Even though Hong Kong stocks still enjoy cheaper valuations, Tsang said it is susceptible to external factors.

As long as Shanghai is in free fall, Hong Kong can not escape the market turmoil next door, because the mainland's largest companies are dual-listed in both locations and any move in the world's second-largest economy will largely change the trajectory of Hong Kong's stock market, he said.

Contact the writers at sophia@chinadailyhk.com and wangmingjie@mail.chinadailyuk.com

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