PBC's failure to further cut RRR affected investors: analyst
A "Black Monday" stock market sell-off spread across the Chinese mainland and other emerging markets on Monday, as concerns over a renewed global economic slowdown precipitated an exodus from riskier assets.
Despite signs of weakness in some emerging markets, short-term financial turbulence doesn't necessarily point to a repeat of the previous financial crisis, experts said on Monday.
China's benchmark Shanghai Composite Index plummeted 8.49 percent, or 297.83 points, to close at 3,209.91 points on Monday, the biggest one-day loss in eight years which erased 2015 gains. Nearly 2,200 stocks traded in the Shanghai and Shenzhen bourses plunged by the 10 percent daily limit on Monday, with only 15 stocks gaining.
Analysts generally attributed Monday's A-shares crash to investor disappointment with the People's Bank of China (PBC), the country's central bank, after it failed to announce an expected cut on the banks' reserve requirement ratio (RRR) over the weekend.
While the central government announced over the weekend a policy allowing no more than 30 percent of net assets of pension funds to be invested in the domestic stock markets, Guojin Securities said in a research note that it would have very a limited impact on the markets in the short term.
Chinese mainland stocks also took a severe hit from Wall Street, which suffered its steepest fall in nearly 4 years on Friday.
On Monday, the Dow Jones industrial average fell more than 1,000 points in early trading and the Standard & Poor's 500 index plunged into correction territory, AP reported.
Ripple effect
The massive sell-off also affected other global stock markets on Monday.
In Asia, Hong Kong's Hang Seng Index closed down 5.17 percent, or 1,158.05 points, to 21,251.57 points, its lowest level since March 2014. Japan's Nikkei average fell 4.61 percent to 18,540.68 points, a six-month low, while the Philippines' PSE index plunged 6.7 percent to a 14-month low.
In Australia, the official ASX200 index suffered its worst one-day trading in six years, losing 4.09 percent.
Across Europe, stock markets all opened deep in the red, with Germany's DAX, Spain's IBEX and Italy's FTSE MIB all down by more than 6 percent as of press time.
Global commodities markets also suffered. U.S. West Texas Intermediate and Brent oil prices both recorded six-year lows on Monday, falling below $40 per barrel and $45 per barrel, respectively. Meanwhile, iron ore and steel futures in China slid to their downside limits.
"Investors have been on high alert for signs of ebbing Chinese growth since the nation's central bank devalued the yuan earlier this month," UBS Wealth Management Global Chief Investment Officer Mark Haefele wrote in a note sent to the Global Times on Monday.
"The disappointing economic numbers from China were made worse by a purchasing managers' survey from the US pointing to the weakest growth rate for manufacturing in nearly two years."
Policy shockwaves
According to Sun Wei, an associate professor at Peking University's School of Economics, economic conditions in China and the U.S. have largely determined how global financial markets perform.
"The U.S. is expected to raise interest rates by the end of the year, while China is pushing forward with a series of financial reforms, such as the recent change to the yuan's daily official guidance rate against the greenback," Sun told the Global Times on Monday. "Given the importance of the two countries, any policy change from them may send shockwaves through the global financial markets."
The current global financial turmoil is the aftermath of the 2008 crisis, according to Xu Bin, professor of economics and finance at the China Europe International Business School.
"Developed countries used quantitative easing measures to deal with the financial crisis, leading to the global liquidity glut and massive capital inflows to emerging-market economies. As the U.S. economy recovers, a rate hike is widely expected but the timing remains uncertain, causing global financial volatility," Xu told the Global Times on Monday.
Despite the recent risk aversion trend in the global markets, experts believe it doesn't necessarily mean a financial crisis may happen.
"Despite the sluggishness of some emerging markets, the U.S. housing sector and job growth remain healthy, so a repeat of the global financial crisis seems unlikely so far," Sun said.
Haefele also wrote that they expect the bout of risk aversion to pass, with equities in developed markets resuming their upward trend, as drivers in the U.S. and Europe have not deteriorated significantly and growth is expected to remain on track in these regions.
