World Economy

China Stock Rout Deepens

China Stock Rout DeepensChina Stock Rout Deepens

Chinese stocks plunged, heading for the biggest two-week loss in more than 18 years. European equity-index futures dropped, while bonds from Spain and Italy slipped ahead of last-ditch talks between Greece and its creditors.

The Shanghai Composite Index tumbled 7.2% in London, as volatility on China’s main bourse reached the highest since 2009 and a gauge of technology shares dropped by a record. Contracts on the Euro Stoxx 50 Index fell 0.8% and Standard & Poor’s 500 Index futures were little changed. Japan’s yen climbed 0.2% versus the euro. Yields on Spanish and Italian bonds rose three basis points, Bloomberg reported.

Chinese stocks are plunging amid concern that signs of economic improvement mean policy makers won’t boost stimulus, restricting liquidity amid tighter regulation of margin lending and a flood of new initial public offerings. Euro-area finance ministers reconvene Saturday after talks Thursday failed to forge an agreement on a bailout for Greece, which faces a debt repayment next week. German Chancellor Angela Merkel said the weekend meeting will be decisive for the indebted nation.

“Shanghai is in a correction mode and not a crash mode, but you can never know how severe corrections can be,” said Mark Matthews, head of Asia research and a managing director of Bank Julius Baer & Co. in Singapore. “The new risk in China is that excessive speculation in the stock market is creating a bubble that the authorities want to control. The risk is that intervention in the market could cause it to go down.”

 No Time for Buying

The Shanghai Composite erased its weekly gain, and is heading for a 19% loss since June 12, the biggest two-week decline since December 1996. A reading for 30-day volatility in mainland China’s biggest venue climbed to 48.7 on Wednesday, the highest since the second half of 2009.

China’s stocks have already peaked and recent declines aren’t an opportunity to buy, according to Morgan Stanley strategists led by Jonathan Garner and Laura Wang. The brokerage predicts the Shanghai Composite will fall between 2% and 30% over the next 12 months.

That call coincides with concern that the boost in equity-market of China’s state-run media is beginning to fade. In January and again in May, the government’s Xinhua News Agency responded to steep declines within hours. Investors have been waiting for a similar response to recent declines.

The Chinext, an index of smaller companies in Shenzhen, has plunged 27% since a June 3 high that saw the gauge’s valuation peak at 130 times trailing earnings. In Hong Kong, the Hang Seng Index lost 1.9%, while the Hang Seng China Enterprises Index of mainland companies listed in the city dropped 2.7%.

 Energy Declines

Australia’s S&P/ASX 200 Index dropped 1.5%, dragged lower by BHP Billiton Ltd. amid a global retreat among energy and resources shares. The S&P 500 Energy Index led declines in New York Thursday, sliding 1 percent. West Texas Intermediate crude was little changed at $59.78 a barrel in New York Friday.

The Nikkei 225 Stock Average fell 0.35, dropping a second day after closing Wednesday at the highest level since December 1996. The broader Topix index slipped 0.2%. The yen has advanced against most of its 16 major peers this week.

Copper was set for the first weekly advance in six. The metal for delivery in three months on the London Metal Exchange slipped 0.1% to $5,775 a metric ton Friday, up 1.9% this week.

Analysts and traders are the most bullish since at least April 24, according to a weekly Bloomberg survey, amid optimism that the Chinese economy is stabilizing, boosting demand prospects for the top metals consumer.