NZX down as China turmoil spreads

An electric display chart showing the afternoon trading trend of the blue chip Hang Seng Index is...
An electric display chart showing the afternoon trading trend of the blue chip Hang Seng Index is seen through a camera at a brokerage in Hong Kong, China. Photo by Reuters
New Zealand shares have opened just under 1% lower in response to the meltdown on Chinese markets and weakness on Wall Street.

After 15 minutes of trading, the NZX50 index was down by 41 points (or 0.71%) at 5726.6 on light trading volume this morning.

In the United States, mounting fears that China's problems could spread drove the Dow Jones industrial average down by 261.49 points (1.47%) to 17,515.42.

Wall Street trading was also disrupted after a technical outage forced a three-hour trading suspension.

Chinese shares have fallen by more than 30% in the past three weeks, and many commentators now see China's market problems as a bigger risk than Greece's ongoing sovereign debt issues.

Forsyth Barr broker David Price said the New Zealand market's decline this morning was mostly driven by offshore influences, but said concerns that the local economy may be coming off the boil was starting to become a factor.

"The data that's come out is just showing softness in the economy and the market is responding to that," he said.

China's ongoing share rout also spread jitters through the Asia-Pacific region yesterday, sparking falls across equity markets from Japan to New Zealand.

Analysts are warning that a prolonged Chinese stock sell-off has the potential to impact consumer confidence and consumption in the Asian superpower, which would be a worrying development for New Zealand and others that rely heavily on China as an export destination.

Asia-Pacific markets

The Shanghai Composite Index plunged 8.2% in the first three minutes of trading yesterday in the biggest sell-off since 2007.

China's stock market crash has erased more than US$3 trillion (NZ$4.5 trillion) in shareholder value since the middle of last month.

About 43% of Chinese listed companies have now suspended trading in order to avoid the volatility.

The S&P/NZX 50 closed down 0.61% at 5767.70 last night, while Australia's S&P/ASX 200 dropped 2% to 5469.5.

Asian markets tumbled even further, with Hong Kong's Hang Seng down 4.7% at 6pm. Japan's Nikkei 225 closed down 3.14 at 19,737.64.

The New Zealand dollar was trading at US66.40c versus its US counterpart at 6pm from US66.78c at 7.30am.

Shanghai's index rallied by more than 150% in the year to June 12 in a meteoric rally driven largely by domestic investors trading with borrowed funds, but has since fallen by more than 30%.

The turmoil in Chinese equities is continuing despite a raft of government-introduced measures aimed at halting the crash.

Yesterday, the People's Bank of China said it would provide liquidity to the state-owned China Securities Finance Corporation with the aim of avoiding "systemic risks".

The Financial Times reported that China Securities was buying shares directly, using funds provided by the central bank, in a bid to prop up the market. The Shanghai index regained some ground following the central bank's statement, and was down 4.5 per cent at 6pm.

The tech-heavy Shenzhen index had fallen 2.6%.

Bernard Doyle, of Auckland investment firm JBWere, said global markets were having to deal with the impact of two complex scenarios - Greece's debt crisis and China's market crash.

"The NZX will absolutely be caught up in the impact of this," he said.

Mr Doyle isn't too concerned about the market chaos causing a fresh wave of weakness in China's economy, whose growth has already slowed to its lowest rate in decades. But a "truly catastrophic" stock market decline of 50% or more could impact Chinese consumption, he said.

"And anything that could impact Chinese consumption we've got to be a little bit careful about."

China was the destination for around 19% of New Zealand exports last year. A fall in Chinese demand for this country's dairy products has been one of the factors driving the slump in dairy prices.

Li-Gang Liu, ANZ's Hong Kong-based chief economist for greater China, said Chinese banks remained healthy and were not heavily exposed to that country's plunging sharemarkets.

"If the banks remain stable I don't think there will be a financial crisis in China," Mr Liu said. "The market correction in the past few weeks should be viewed as a timely warning, allowing share prices to return to a level reflecting their underlying values."

However, he said a prolonged stock market sell-off could impact Chinese consumer confidence.

"This requires the authorities to take a market-based approach and allow the market to find equilibrium. If they continue to intervene, then the process could be prolonged."

Macquarie Private Wealth equity strategist James Grigor said that while volatility was increasing, New Zealand still had some good growth drivers. "I don't think it's panic stations yet.

"There are still some really good, high quality listed equities in the [local] market that pay a really good yield and they're not paying out 100 percent of their cash so that yield is quite stable."

- NZME and Christopher Adams of the New Zealand Herald

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