By Yifan Xie and Chao Deng
Japan and Australia stocks both rise.
A bruising three-day selloff left Chinese stocks heading for
their biggest weekly loss in five years Friday, after investors
took pause after a breathtaking rally in 2015 and the authorities
clamped down on risky bets.
The benchmark Shanghai Composite Index recovered by 1.3% to
4,166.17 Friday, but is still down more than 6% for the week. That
would be the worst weekly performance since May 2010, and first
week of losses since early March. The index remains up 29% this
year.
The volatility isn't entirely unexpected, as many say the market
is due for a cooling off after doubling over the past 12 months.
Analysts say investors are looking to take profits, while concerns
are growing over a clampdown on margin trading, where investors
borrow from brokers to pump funds into the market. A number of
initial public offerings has also soaked up cash from the
market.
"Investors aren't prepared for such a steep loss, but the market
is bound to face a correction," said Qian Qimin, analyst at Shenyin
Wanguo Securities. "The accelerated pace of IPOs has drained
certain liquidity on the secondary market."
Among the biggest losers this week were heavyweights in
infrastructure, transportation, aviation and steel.
International brokers have also been warning investors of a less
cheerful outlook. Morgan Stanley (MS) downgraded Chinese stocks for
the first time in more than seven years Thursday, while Bocom
International declared this week that the market will enter a
highly volatile correction phase.
Some investors say a string of articles in China's state media
warning about risks are a major factor in the market decline.
State-run People's Daily Online refuted such views, arguing the
articles are merely a "reminder of risks, not a negation of the
bull market."
China's Securities Regulatory Commission is stepping up efforts
to rein in margin financing, which brought in around 1.7 trillion
yuan ($270 billion), as well as other types of informal
financing.
The regulator has "to make sure that investors understand that
the market isn't a casino," said Teng Yin, chief strategist at
Everbright Securities. "If it is overheated, that is abnormal and
will siphon off capital from the real economy. The market is
supposed to optimize asset allocation for the real economy."
Still, most investors are staying bullish. Many say the China's
stock market is still cheap since it underperformed for years, and
is now just playing catch-up. As well, hopes remain for further
monetary easing, helping stocks with extra cash sloshing around the
banking system. And with many predicting gloom in the real-estate
market, cash has been trekking over into equities.
"We still expect a rebound in the rally before year-end," said
David Gaud, senior fund manager at Edmond de Rothschild Asset
Management. "We are at a quite critical point where people are
already starting to feel the pain of being underweight China and
overweight India and Indonesia, for instance," he added, noting
that those two markets are in negative territory this year. Any
repositions would favor China and Hong Kong, he said.
Meanwhile, Japan's Nikkei Stock Average was up 0.5% at 19,378.41
as recent sharp gains in bond yields gains globally are easing, and
overseas stock markets are stabilizing. Shares of Nintendo Co. were
up 6.1% after better-than-expected earnings results, including the
first annual operating profit in four years.
Australia's ASX 200 was up 0.3% at 5,663.1, recovering from a
3.1% drop over the previous two days.
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