U.S. stocks rebound after punishing day, but China’s market slides again
The sharp rally marked the first encouraging start after several days of chaotic trades.
Investors monitor screens showing stock market movements at a brokerage house in Shanghai. (AFP/Getty)
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Isabelle Risacher Moogalian said, she ducked behind some seats as he
lunged to grab the assault rifle from the gunman’s hands.
U.S. stocks rebound after punishing day, but China’s market slides again
The Dow Jones industrial average jumped 250 points, or about 2 percent, and stayed level one day after raucous trading sent the index of 30 blue-chip stocks screaming toward an 18-month low.
The Standard & Poor’s 500, a broader look at the market, and the Nasdaq Composite, an index dense with tech stocks, jumped about 2 percent, helping recoup some of the losses from the markets’ steepest two-day plunge since the financial crisis.
The sharp rally marked the first encouraging start after several days of chaotic trades, in which many large U.S. companies lost tens of billions of dollars in market value amid a worldwide selling frenzy.
Global markets recovering from the hangover are still down from long-term highs, and lingering concerns over China’s fragility could lead to another wild ride.
But Tuesday’s calmer opening, in which all Dow stocks pocketed solid gains amid a wave of bargain buying, could go a long way toward helping shareholders and workers with 401(k) retirement accounts regain some confidence in their investments.
In China on Tuesday, authorities appeared powerless to prevent a further slide in the country’s ailing market, as the country’s main share index plunged for a fourth straight day.
The woes of the world’s second-largest economy have fueled a global sell-off in shares that gathered pace Monday, with the Dow swinging wildly, including with an early 1,000-point free fall, before ending nearly 600 points in the red.
The main Shanghai share index opened Tuesday more than 6 percent lower to set a new eight-month low. A slight recovery was not sustained, and it ended 7.6 percent down.
“At the moment there’s panic in the market, because we have lots of retail investors,” said Wei Wei, an analyst at Huaxi Securities in Shanghai. “We’ve never experienced anything like this in China’s stock market, the speed of the decline and the scale of it.”
The resurgent U.S. rally seemed to bolster arguments that Monday’s panic was an overreaction to fears of a dramatic Chinese descent.
Global markets have lost trillions of dollars in market value over the last few weeks, erasing all gains for the entire year and stoking fears of a deepening rout.
But as in the United States, other international markets have seemed to regain some footing. Markets in Hong Kong, South Korea, Australia and Singapore posted modest gains, although Tokyo’s Nikkei 225 index closed nearly 4 percent down. Europe’s main markets opened higher, and stocks were climbing in early trading.
Oil prices also steadied, with U.S. light crude rising steadily off its six-year low to just below $40 a barrel. Global oil prices have slumped due to concerns over a China slowdown and international glut.
The buoyed U.S. markets could further affect how the Federal Reserve schedules its expected rise of interest rates, which have plunged to record lows but could be lifted as early as next month.
Yields for U.S. Treasury bonds, considered safe havens during market upheavals, climbed after dipping on Monday below 2 percent for the first time since April, a signal that investors were again ready to brave the broader markets.
The new stability in markets lifted companies in every sector, particularly the giants of American tech. Shares in Apple, the world’s most valuable company, jumped more than 5 percent in early trading, one day after chief executive Tim Cook reassured investors in hopes of curbing the firm’s billions of dollars in market losses.
Amid the economic turbulence, President Obama’s national security adviser, Susan E. Rice, will visit Beijing this weekend to meet with senior Chinese officials and “consult on a range of bilateral, regional and global issues,” the White House announced Tuesday.
During her talks Friday and Saturday, Rice will underscore the U.S. commitment to “building a more productive relationship” and discuss “areas of difference” ahead of a state visit by President Xi Jinping to Washington in September, National Security Council spokesman Ned Price said in a statement.
When the Chinese market first started its drop, authorities unleashed a series of measures to stop the slide, establishing a $400 billion fund to buy stocks, ordering state-owned companies to buy shares, banning large shareholders from selling and even launching criminal investigations into short sellers.
The People’s Bank of China cut its one-year benchmark lending rate by a quarter of a percentage point to 4.6 percent and its one-year deposit rate by the same amount to 1.75 percent.
“The main goal of cutting rates is to support the healthy development of the real economy,” the bank said in a statement.
It also moved to increase liquidity by lowering the minimum reserves that banks are required to hold by half a percentage point, effective Sept. 6.
But experts said the moves were unlikely to be enough to rescue the stock market.
“Even though it’s a positive signal for stock market, it won’t change anything,” said Wu Xianfeng, president of Longteng Asset Management in Shenzhen. “The move is far from being enough from erase the market’s panic.”
Aside from the central bank’s action, authorities appeared to be largely standing aside this time, partly because they know they cannot stem a global slide in equity markets, and partly because government intervention to buy shares was simply becoming too expensive, experts said.
“The trade volume of the market can reach 2 trillion yuan ($300 billion) a day, which means if it collapsed no one could save it,” Li Jiange, vice chairman of state-owned investment company Central Huijin, wrote in a widely circulated blog post. “The issues of the market should be handled by the market itself.”
Central Huijin is reported to have been involved in buying shares to support the market, but Li’s comments suggested this was no longer seen as a viable strategy.
“The authorities stepped in and tried to save the stock market once. And you can see it is not working,” said analyst Wei. “The authorities might step in but probably not in as high profile a way as they did last time. It’s not helpful for them to interfere like that.”
Concerns are mounting about an economic slowdown in China, although official figures still show an annual gross domestic product growth of 7 percent.
The stock market has fallen more than 40 percent since June, but it remains more than 35 percent higher than it was a year ago.
Nevertheless, many traders believe more pain is around the corner for the stock market.
Indeed, there are growing signs that the authorities have decided to let market forces run their course.
On Aug. 14, the China Securities Regulatory Commission (CSRC) suggested it would pare back its intervention in the market, only stepping in when “the market fluctuates dramatically and introduces systemic risk.”
Even after this week’s sharp declines, however, there has been no sign of major official share purchases.
Caixin, a business news Web site, quoted an anonymous source at the regulator as saying it had stood aside on Monday, even to the extent of not ordering staff to work overtime as it had in the past.
“CSRC stopped focusing on index numbers, which is a improvement in supervision,” the source said.
In a front-page commentary, a state-run economic daily argued that the economic situation was not “that bad” and said the government was addressing problems such as a buildup in local government debt.
But the commentary in the Economic Information Daily also suggested that the program to support the stock market should be wound down.
“The global stock plunge was more likely caused by emotions rather than fundamentals,” it said. ”It’s not good for the recovery of the economy to bring back the focus of quantitative easing to the stock market.”
China’s state-run Xinhua news agency made headlines by trumpeting the previous day’s decline as “Black Monday.” But official media seemed more on message Tuesday; the state-owned tabloid, the Global Times, argued that “morale” was needed but that China’s economy was still one of the strongest in the world.
“There is no need to worry because of pessimistic voices from the outside world,” it wrote. “China’s economy is in a bitter period of structural adjustments. We should become inured to face all sorts of problems with grace. This temporary lack of confidence will not snowball to become destructive.”
On Monday, the Chinese government’s main economic planning body, the National Reform Development Commission, also tried to reassure investors.
“With the series of policies released by the government, it is expected China’s economic growth will remain stable in the second half,” it said in a statement. “The positive long-term trend hasn’t changed.”
Policymakers in the region also tried to calm sentiment.
“I think it’s important that people don’t hyperventilate about these type of things,” said Australian Prime Minister Tony Abbott, according to the Reuters news agency. China is the biggest consumer of Australia’s commodity exports.
“It is not unusual to see stock market corrections,” Abbott said. “It is not unusual to see bubbles burst in particular markets and for there to be some flow-on effect in other stock markets, but the fundamentals are sound.”
Japanese Finance Minister Taro Aso also said the stock market’s rise had been a bubble that was now bursting, but he also threw a barb at his country’s archrival.
“There’s also suspicion on whether China’s official GDP figures reflect the real state of the economy,” he told a news conference after a cabinet meeting in Tokyo, Reuters reported.
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