With a near 7 percent slump in China shares listed in Hong Kong this week, global investors will be keeping a cautious eye on the reopening of Chinese mainland markets on Monday after the week-long Lunar New Year holiday.
The Hang Seng Index fell 1.2 percent to a three-and-a-half year low of 18,319.58 on Friday, while the China Enterprises Index lost 1.99 percent.
Worries about China's slowing economy and uncertainty over its foreign exchange rate policy were cited as key factors behind global markets' sudden fall in January. But in the past week, with mainland markets closed, additional worries have surfaced ranging from the health of European banks to doubts over whether central banks can dole out more effective stimulus.
Analysts at Haitong Securities attributed the turmoil in global markets in the past week mainly to the excessive exuberance of the world's main stock markets such as in Japan and Germany, under the stimulus of the loose monetary policy in these countries. They said the uncertainty of global growth prospects, the continued declining oil prices and "hard landing" concerns of China's economy have also increased risks in global markets.
Analysts from China International Capital Corp (CICC) and GF Securities said the turbulence in the global stock markets will not have much of an impact on the Chinese mainland markets when they reopen on Monday.
Analysts at CICC said investors should keep their pessimism in check considering how far stock prices had fallen before the holidays.
They recommended real estate stocks due to the possibility of upcoming government policy support. They also recommended consumer stocks that had fallen to reasonable valuations after the recent plunge in prices.
Just before the start of the week-long holidays, official data showed a third monthly decline in the country's massive foreign reserves in January as the central bank dumped dollars to defend the yuan and prevent an increase in capital outflows.
This data increased market concerns. Analysts at Sinolink Securities Co said 2016 will be a tough year for investors in A shares.
