Markets run into Chinese wall

Mumbai, July 8: China's tumbling stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and indexes plunged after the securities regulator warned of "panic sentiment" gripping investors. This panic did not take long to spread to bourses world over, with markets such as India, which had so far managed to stay aloof, joining the rout in other markets.

In Asia, Hong Kong shares dropped 8 per cent, and Japan's Nikkei and stocks in Australia took heavy blows, leaving investors only the yen and safe-haven government bonds for refuge. The yen rose to a six-week high against the dollar. US stocks were down 1 per cent in early trading.

European shares were, however, up 0.1 per cent and looked on course earlier to snap a four-day losing streak.

Stock markets in China are in the midst of a serious turmoil with the Shanghai Composite Index falling more than 30 per cent since mid-June and reports say that close to 40 per cent of the stocks listed have now halted trading. It is estimated that investors have suffered losses of around $3 trillion over the same period.

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.

Trading halts

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 - 45 per cent of the market or roughly $2.4 trillion worth of stock - as companies scuttled to sit out the carnage.

With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a modest 0.8 per cent.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.8 per cent, while the Shanghai Composite Index dropped 5.9 per cent.

With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilisation funds earlier in the week bore the brunt.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

Domestic shares

The stock markets in India had so far shrugged off the events in China and displayed immunity, but today domestic share prices joined the slide.

The BSE Sensex crashed 483.97 points, or 1.72 per cent, to settle at 27687.72 after collapsing nearly 535 points during intra-day trades. Similarly, the broader Nifty, too, lost 147.75 points, or 1.74 per cent, to end the day at 8363.05.

There is a fear that the meltdown in Chinese shares may adversely affect demand and, therefore, its economy. This is because retail investors constitute a significant chunk of investors there.

In addition to China, eyes are still on Greece, which made a formal request for a three-year loan deal from the euro zone rescue fund.

Commodities hit

Commodity prices, too, have taken a beating as a ripple effect of the crisis in China, which is the world's largest consumer of industrial commodities.

Brent crude for August fell 13 cents to $56.72 per barrel.

The rupee also lost ground, which closed down 14 paise at an over one-week low of 63.60.

Gold prices declined to an over three-month low, plunging Rs 330 to Rs 26,170 per 10 grams in the national capital. A firming dollar only reduced its appeal. Similarly, in Calcutta, gold dropped Rs 220 to Rs 26,310 per 10 grams.

NYSE glitch

The New York Stock Exchange suspended trading in all securities on its platform late morning on Wednesday for what it called an internal technical issue, and cancelled all open orders as investors shifted activity to other venues.