Asian stocks tentative day after China plunge

Oil prices slid in volatile trading, following the stock market lower on fears of China’s slowing economy.

“The market is trying to anticipate the global growth story”, said Kevin Kelly, CIO of Recon Capital Partners. “This isn’t a blip”. When trading resumed, the market quickly fell another 2 percent and trading was suspended under the same rules, which limit a day’s losses to 7 percent.

Saudi Arabia, the world’s biggest oil exporter, cut diplomatic ties with Iran on Sunday in response to the storming of its embassy in Tehran, following Riyadh’s execution of a prominent Shi’ite cleric on Saturday.

The bank’s troubling outlook for the dollar, outlined in a report titled, “Return of the Northern Peso”, suggested that tight corporate spending, a “non-trivial” chance of further monetary easing and a subdued outlook for oil prices all factored into its pessimistic view.

The Dow declined as many as 467 points, but bounced off the lows and ended the day down 276 points.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen rose 0.3 percent, to 3,478.78, while the Shanghai Composite Index lost 0.3 percent, to 3,287.71 points.

European indexes have been down by two to four percent.

Elsewhere in Asia, Japan’s Nikkei 225 tumbled 3.1 per cent and Hong Kong’s Hang Seng retreated 2.7 per cent. South Korea’s Kospi closed 2.2 per cent lower.

Britain’s benchmark index suffered its worst new year start in 16 years.

Dealers began selling immediately after data from official and private surveys of manufacturing showed activity shrinking in December.

China’s six-month-old campaign to calm share markets will be put to the test when stocks reopen on Tuesday, a day after selling triggered an unprecedented trading halt and risked undermining state rescue efforts estimated to have cost around $140 billion. It was the first time China used the “circuit breaker” mechanism it announced late past year.

The slowdown in China is worrisome around the globe because the country’s manufacturers are huge buyers of raw materials, machinery and energy from other countries.

Small cap stocks, favoured by the retail investors who dominate transactions on Chinese exchanges, sold off sharply.

Last summer, a severe selloff in China’s stock market sparked a global market rout, which was seen as one of the reasons the U.S. Federal Reserve kept rates on hold at its September meeting.

Ernie Cecilia, chief investment officer of Bryn Mawr Trust, warned that investors shouldn’t overreact to Monday’s drops.

“It’s in fact been one of the worst first trading days on record”, said market analyst Jasper Lawler at CMC Markets UK. It halts trade for 15 minutes if the CSI300 index falls or rises 5 percent in a day, then suspends trade for the day if it continues to fall or rise to 7 percent.

Adding to the jitters today are Middle East tensions, which pushed up oil prices. The yield on the 10-year Treasury note fell to 2.24 percent from 2.27 percent. The contract fell 28 cents to close at $36.76 a barrel on Monday.