Translated material
Chinese instability
Markets fell from east to west
The more hopes for a global economic recovery grow, the more acutely the markets perceive any negative data. It's even worse if bad news comes from key markets. Yesterday such news came from China and immediately turned markets from Shanghai to New York into bearish markets.Information that the increase in lending in August could be half that of July led to the most rapid fall in Chinese stocks in the last 14 months. Industrial Bank Co. shares and aluminum company Aluminum Corp. of China Ltd. decreased by about 10%. China's largest airline, China Southern Airlines Co., whose net profit in the first half of the year fell by 97% compared to the same period in 2008, lost 7.9%. Since August 4, the Shanghai Composite Index has fallen by 23% to 2,667 points. Chinese indices showed the worst results in the world this month. "The Chinese economy is not sustainable and the Shanghai Composite Index should fall to 2,000 or below," said former Morgan Stanley economist Andy Xie. In his opinion, the Chinese market remains overheated.
In addition, the mood of market participants could be affected by political changes in Japan , which raise fears of some uncertainty in future economic relations in the region. In Sunday's elections, the Democratic Party of Japan won a landslide victory over the Liberal Democratic Party, which had been in power for more than half a century. Party leaders have vowed to revive the economy by increasing child welfare spending, cutting taxes and limiting the influence of bureaucracy.
“Some believe that the market has responded to political changes, but the current decline in share prices is too great for that. The impact of the Democratic Party of Japan's victory on corporate earnings is still unclear, and investors are unable to determine what is worth buying or selling,” said fund manager T&D Asset Management Co. Hisakazu Amano.
Historical experience shows that cataclysms in the Chinese stock market have a significant impact on Western and Russian markets. In early 2007, China experienced its worst stock market crash in a decade. The huge Chinese “bubble”, which had been inflating for about a year, burst after the Chinese authorities announced a fight against illegal trading in shares. China's main indices then collapsed by almost 10%, and Russian ones by about 5%.
Yesterday, the Chinese fall turned out to be decisive even for the American stock market. Stock trading in the US opened with a significant decline in indices. The Dow Jones fell 0.6%, the Nasdaq fell 0.87%, and the S&P 500 fell 0.9%. The shares of the insurance company AIG fell by almost 8%. Morgan Stanley shares fell 3.2% as recommendations for the bank's shares were downgraded by Bank of America analysts.
“There is an understanding that hopes are significantly ahead of fundamentals. The stock market recovery may be going too fast,” said ING Investment Management strategist Vincent Juvins.
The Russian RTS index fell by 2.27% by the end of the session to 1064.73 points. The shares of Gazprom lost 2.89%, LUKOIL - 1.38%, Norilsk Nickel - 2.79%, Sberbank - 2.24%.
“On Monday, at the beginning of trading, a downward correction was observed in the blue chip sector. A new round of decline in Chinese stock indices has had a negative impact on investors’ willingness to accept risk, notes Dmitry Kulakov, head of the equity department at Olma Investment Fund. -- A correction has emerged not only in the stock markets, but also in the commodity markets. Additional evidence of a reduction in risk appetite can be seen in the strengthening of the Japanese yen and dollar observed in the foreign exchange market. Meanwhile, technical analysis data does not yet allow us to talk about signals for a noticeable decline in the RTS index - the index is still significantly above the 1000 point mark.”