Asian Stocks Fall as China Rout Triggers Drop in Global Equities

Asian stocks dropped after a rout in Chinese equities drove global shares lower.

The MSCI Asia Pacific Index declined 0.7 percent to 139.94 as of 9:04 a.m. in Tokyo, extending its five-day fall to 3.7 percent. The Shanghai Composite Index plunged the most in eight years on Monday, intensifying concern government efforts to prop up shares are unsustainable. The turmoil bolstered speculation the Federal Reserve will keep U.S. interest rates lower for longer.

“Extreme caution is needed here,” said Matthew Sherwood, Sydney-based head of investment strategy at Perpetual Ltd., which manages A$33 billion ($24 billion). “The return of market volatility in China will be a significant discussion point at the U.S. Fed. in terms of what this is telling us about the Chinese economy. There is a lot of global weakness and significant external risk.”

Japan’s Topix index declined 1.2 percent as the yen held three days of gains to trade at 123.27 per dollar. South Korea’s Kospi index retreated 0.6 percent and Australia’s S&P/ASX 200 Index slid 0.4 percent. New Zealand’s NZX 50 Index lost 0.3 percent.

After the 8.5 percent slide in the Shanghai Composite, the Standard & Poor’s 500 Index declined 0.6 percent at the close in New York on Monday, falling for a fifth day. European stocks sank 2.2 percent and emerging-market shares lost 2 percent.

Continued Support

China’s securities regulator assured investors the government hasn’t withdrawn support for equities.

The China Securities Regulatory Commission will continue to “stabilize” the market and “prevent systemic risk,” spokesman Zhang Xiaojun said in a statement on Monday. He was responding to media reports saying the government was pulling back from support measures adopted after the China’s stock market began tumbling last month, according to the statement.

The International Monetary Fund recently urged China to unwind its support measures, saying share prices should be allowed to settle through market forces, a person familiar with the matter said last week.

Futures on the FTSE China A50 Index, which tracks the largest Chinese companies, slipped 0.2 percent in most recent trading. Contracts on a gauge of mainland shares listed on Hong Kong lost 0.6 percent.

E-mini futures on the S&P 500 rose less than 0.1 percent.

Courtesy: Bloomberg Business 28 July 2015