Rout in Chinese stocks heralds wider weakness if Fed raises rates, Rabobank says
Chinese stock-markets saw follow-through selling from Monday's sharp losses as investors continued to try and understand both what provoked the relapse and the potential implications for the rest of financial markets.
The Shanghai Stock Exchange’s Composite Index closed 1.68% lower on Tuesday at 3,663.002 after having hit an intra-day minimum below the 3,550 point mark.
In the previous session it suffered its second worst day of trading in history, dropping by 8.5%.
“Does the slump really reflect concerns over weaker economic growth when the dramatic bubble ascent occurred at a time of sharply weaker growth in the first half? It all seems pretty random to me, was the answer from Jim Reid at Deutsche Bank.
"There was no obvious explanation for the timing or magnitude of the slump."
Nonetheless, Reid added that a report from Reuters on Monday that the China Securities Finance Corporation had returned some of the rescue funds it had been loaned early had led to some confusion.
After the close of trading the China Securities Regulatory Commission denied a retreat by the CSFC, announcing it would “continue efforts to stabilise market and investor sentiment and prevent systematic risk.”
On 24 July, the International Monetary Fund urged Beijing to eventually dial back on its efforts to prop up stockmarkets and allow market forces to set prices.
Analysts at Rabobank on the other hand highlighted how the turbulence in Chinese capital markets came on top of reports of new tensions between the International Monetary Fund and Greece and as the US Federal Reserve prepared to possibly raise interest rates.
“If the Fed wants to continue to take the ‘glass half full’ view, a negative reaction from emerging markets can be expected to continue, especially with the Chinese engine clearly sputtering: that is a major concern in our increasingly-integrated global economy,” the Dutch bank said in a research note e-mailed to clients.