As we go into a weekend that will be dominated by the last minute talks on Greece’s survival, China’s markets have given us another reminder about why they are more important to us in Australia that what is happening 12,000 kilometres away.
At 3 pm Sydney time, China was down more than 4%, after the big trading swing on Thursday – that was after an opening plunge in Australia and a slide in the Tokyo and Hong Kong markets.
The Aussie market was off 1.5% and Hong Kong was down 1.5% as well. The Chinese markets are now in correction. The Japanese market was moving sideways after the end of month drop of economic data showed the economy was chugging along nicely.
While the rising level of concern about a possible Greek default is partly responsible, that won’t happen until next Tuesday at the earliest.
The sell-off in China is being driven by rising fears about the overstretched valuations and the huge amount of margin call trading which is being pressured by brokers and banks trying to square their accounts ahead of the quarter’s end next Tuesday
The Shanghai Composite was more than 4% and the more speculative Shenzhen Composite fell 6% – extending the sell off which started on Thursday afternoon.
The Financial Times quoted a note from Morgan Stanley analysts that this dip in China was “probably not a dip to buy”.
“Our study of 34 prior major emerging market equity market bull runs also shows that strong equity market performance tends not to be associated with subsequent GDP growth improvement (observed in only seven cases), counter to the argument often made that the market is likely to lead a strong economic recovery,” the FT reported Morgan Stanley as writing in the note to clients.
Australia’s ASX 200 was the next-worst performer in Asia as resource stocks, led by BHP dragged the index down by more than 80 points, or 1.5% at 3 pm.
It had been down by just over 100 points earlier in the day as investors reacted the the expected fall in commodity prices as the US dollar firmed a touch on those fears about Greece.
Last-ditch talks by euro zone finance ministers will resume on Saturday to try and avert a Greek default next Tuesday.
Greece has to repay the International Monetary Fund 1.6 billion euros on Tuesday. It doesn’t look like happening unless there’s a dramatic change of heart in Greece and Brussels in the next 48 to 72 hours.
