China sharemarket resumes sell-off

China’s stocks opened sharply lower again today after concerns over its economy hammered global markets last week.

Investors watch stock market movements in Wuhan.

The Chinese sharemarket opened sharply lower again today, resuming its downward spiral after concerns over China’s economy hammered global markets last week.

The new falls came after a weak inflation result for 2015 raised the prospect that interest rate cuts could have to be ordered to help keep the world’s second largest economy on track.

The Shanghai Composite Index slumped two per cent at one point before paring its losses to sit 1.2 per cent lower. The smaller Shenzhen Composite Index, last down 1.5 per cent, fell as much as 3.3 per cent, while Hong Kong gave up 2.3 per cent after earlier falling to their lowest level in three years.

Tokyo was closed for a public holiday.

A run of negative sessions means the mainland Chinese market is down nearly 5 per cent over the past year, after notching triple-digit gains during the bull run last year.

Economists expect the People’s Bank of China (PBoC) could be forced to cut interest rates shortly to help stock economic activity and lift lending levels across the country.

Inflation during 2015 rose by just 1.4 per cent, less than half of the government’s official 3 per cent target.

“Pessimism is the dominant sentiment,” said William Wong, head of sales trading at Shenwan Hongyuan Group told Bloomberg in Hong Kong.

“The PPI figure confirms the economy is mired in a slump. Market conditions will remain challenging given weak growth and volatility in external markets and the yuan’s depreciation pressure.”

Independent investment advisor Guo Yiming said the recent move by Chinese authorities to suspend controversial “circuit breakers” - which shut the market when stock fell by 5 and then 7 per cent - should restore stability despite today’s continuing volatility.

“Some of the ‘hot’ stocks like coal are plunging today which has blown the confidence of investors,” he said.

“But there has been irrational volatility in the market but after the response from the authorities I think the market will gradually be stable and we will a rebound.”

The continuing concerns about China overshadowed a strong US jobs report on Friday night.

“The market is concerned about China’s financial stability,” Matthew Sherwood, head of investment strategy at asset managers Perpetual in Sydney, told Bloomberg News.

“People are also quite nervous about the Chinese economic outlook. China is certainly slowing on a very gradual path down. A lot of people are fearing a hard landing is in play.”

Investors extended losses from last week, which was one of the worst starts to a year on record with dealers rattled after trade was suspended twice in four days in Chinese markets. Shanghai ended last week about 10 per cent lower, in echoes of a sell-off that fuelled global turmoil in the summer.

Last week’s share rout was also sparked by China’s falling yuan.

Today, China guided its currency sharply stronger for a second straight session, in a move that might calm concerns about a competitive devaluation, but only added to market confusion as to Beijing’s ultimate policy intent.

The People’s Bank of China set the midpoint for the yuan at 6.5626 per US dollar, confounding analysts who had looked for something around 6.5860.

The move was an apparent reversal of the recent weakening trend which included the biggest one-day drop in five months.

China’s foreign exchange regulator on Saturday said it would ramp up risk control efforts and push ahead with regulatory reforms, but was frustratingly short on specifics.

With Agencies