The Australian share market at the Australian Securities Exchange fell for a third trading day in a row on Tuesday, with the fall-out from Monday’s Wall Street rout trumping renewed calm in China.
The S&P/ASX200 closed down 1.6%, or 86 points, at 5184.4, or just above the day’s low, while the broader All Ords also lost 1.6%, or 83.6 points, to 5239.2, AAP reported.
The fall followed overnight declines on Wall Street, which was driven mainly by Monday’s dramatic slide in Chinese shares but also in part by weak manufacturing and construction data.
On Monday, investors wiped almost $30 billion off the Australian share market amid rising volatility in global markets caused by heightened concern about China and the Middle East tensions.
The dollar also stumbled as investors sought relative safety in the US dollar and Japanese yen. The local currency hit a three-week low of $71.56 before rallying to $72.
While the Shanghai Composite initially recovered from a 3.2% fall when trading resumed after Monday’s 7% dive following disappointing manufacturing data and the start of a new automatic circuit breaker, China’s main share index was back in the red late Monday.
After a midyear rout prompted unprecedented intervention from state-controlled funds, a four-month ban on initial public share offers and a six-month ban on selling by large shareholders, financial markets in the world’s second-biggest economy were again coming under pressure.
New Circuit Breaker
Investors fear the new circuit breaker will drain liquidity, and that a weakening exchange rate will expedite capital outflow when the selling ban is due to be lifted this Friday.
“I think the fall we saw in Chinese shares on Monday was dramatically exaggerated by the start of the so-called circuit breaker,” said Shane Oliver, who helps manage about $156 billion as head of investment strategy and chief economist at AMP Capital.”
Underscoring concern about capital flight and a potential run on the yuan as China’s economic growth slows to the lowest rate since 1990, the offshore US dollar-yuan—which is largely determined by the market—hit a five-year high of 6.64 Monday. Despite a newly implemented circuit breaker that was triggered by Monday’s 7% slump in the broader CSI 300 share index, China was forced to intensify its efforts to prop up its share market as investors rushed to sell before the end of the insider selling ban.
PBOC to the Rescue
The People’s Bank of China said it would pump 130 billion yuan ($27.4 billion) into its financial system—the biggest single-day injection since September 8—as tumbling stocks and a sliding currency threatened to further erode confidence in the world’s No 2 economy.
The PBOC also directed some of the nation’s biggest state-run banks to buy the yuan, helping the onshore rate reverse its deep losses from Monday, according to The Wall Street Journal. The onshore rate fell to 6.52 yuan, down from 6.53 at Monday’s close.
By comparison, Goldman Sachs estimated that the share lock-up represents over 1.1 trillion yuan of stock holdings, or 5.8% of total A-share free float market capitalization.
Major banks including ANZ, CBA and NAB fell at least 1.5% Monday as volatility spiked.
Some of last year’s market darlings were also caught up in the profit-taking included CSL, Cochlear and Macquarie Group.
Blackmores—the best performer in the S&P/ASX 200 last year—fell 4.3% to $211.41 a share.
Iron ore miners weren’t spared despite a sustained recovery in iron ore prices. Spot iron ore has risen 16% to $44.37 a ton in the past four weeks, yet BHP Billiton and Rio Tinto shares both fell 1.2% Monday, to $17.48 and $44.08 respectively.
The energy sector was weakest, with Woodside Petroleum down 2.8% to $28.76 after the bounce in oil prices proved short-lived.
Capital Increase
Australian businesses plan to increase capital investment in 2016 despite having downbeat expectations for their bottom line. The general outlook for the business sector remains “relatively muted”, with lower expectations for sales, profits and employment for the first quarter of 2016 compared to the final three months of 2015, the latest Dun & Bradstreet business expectations survey found.
However, the investment outlook has taken a positive turn, with the Capital Investment Index up to 12.6 points, compared to 11.9 points in the December quarter.
Some 23.1% of businesses intend to increase spending on capital investment in the first quarter of 2016 compared to the fourth quarter of 2015, the survey found.
