Shanghai shares crashed 8.5 per cent yesterday, their worst one- day dive in more than eight years, amid mounting fears of a deepening slowdown in China.
Rising alarm over the health of the world's second-largest economy wrought havoc on commodities, currencies and bourses across Asia. A United States Federal Reserve meeting this week on interest rates, with hikes looming, added to general nervousness.
Yesterday's selldown on Asian markets, led by Wall Street's retreat on Friday, escalated sharply after China released bearish industrial company profits data, which fell 0.3 per cent in June from a year earlier.
The data came after an unexpected drop last Friday in a key gauge of Chinese factory activity to a 15-month low. The Caixin/ Markit China manufacturing Purchasing Managers' Index fell to 48.2 this month, from 49.4 in June.
"This suggests China is still not out of the woods in terms of its economic weakness, despite a recent slew of positive data. The selldown in the domestic 'A' share market could also weigh on domestic consumption going forward," DBS said yesterday.
As spooked investors bailed out yesterday, China's other major bourse, Shenzhen, plummeted 7 per cent, Hong Kong sank 3.1 per cent, Taiwan shed 2.4 per cent, Thailand fell 1.78 per cent, Indonesia lost 1.76 per cent and Singapore eased by 1.17 per cent.
"The sell-off in China is a continuation of the unwinding in margin trading, and lower equities prices in turn triggered new margin selling. The downward spiral isn't over yet. We are going through a period of risk-off, nervousness ahead of the impending rate hikes," CMC Markets analyst Nicholas Teo said.
Financial markets and investors are watching the Fed's policy meeting, to be held today and tomorrow, with bated breath, as most analysts tip a hike in either September or December.
Also weighing on financial markets is a weak outlook on US corporate earnings.
The renewed dive in China equities is a blow to policymakers, who have implemented unprecedented measures to stem a US$4 trillion (S$5.5 trillion) rout that ran for a month until mid-July. They triggered a 17 per cent rebound on Shanghai in the past two weeks, but the bourse has lost 9.7 per cent of the gains since last Thursday.
Some traders are betting China's central bank has little room to cut interest rates further, as four reductions in seven months raised inflation risks.
Plunging oil and commodity prices and China's slowing economy sent the Australian dollar skidding below S$1 yesterday. The ringgit hit a 17-year low to 3.811 per Singdollar.
SEE TOP OF THE NEWS