Australia: Shares hit one and a half year lows on China fears

“Investors don’t like uncertainty, but we still believe this is the pause that refreshes, that basically these declines were really needed because some of the markets were getting a little bit overvalued”, Mr James said.

The September share price index futures contract was down 96 points at 5,072, with 18,891 contracts traded.

The Australian dollar also hit a fresh six-year low of 72.01 US cents.

He said several factors would cause volatility in the markets in the next few months, particularly if the US Federal Reserve made a decision to move on interest rates in September.

Treasurer Joe Hockey said that while markets will go up and down, the fundamentals were still good for the global economy, particularly the US.

Telstra also dropped, by more than 1%.

“There are clearly risks, but the data indicate that US and European economies continue to recover, lower oil prices will serve to boost consumer and business spending, and Chinese authorities are trying a range of measures to maintain momentum in their economy”.

Added to the China concerns is a growing fear about the potential fallout from the first US interest rate rise in nearly a decade, which many analysts expect next month and most predict will happen this year.

Rather than the beginning of a crisis, the market falls are a correction from highs reached earlier in 2015, he said.

Worries about a slowing Chinese economy flared on Friday after a survey showed a further deterioration in manufacturing activity.

“We’ve seen this all beforehand”.

Local losses reflected worldwide market turmoil.

Al Jazeera’s Adrian Brown, reporting from Beijing, said “you don’t need to be an economist to understand that there are some very odd things happening in the Chinese economy”.

In an ominous sign for the Australian market, BHP Billiton was off 2.5 per cent, much steeper than its 1.1 per cent slide on the ASX on Friday, while Rio Tinto’s 2 per cent drop was in stark contrast to a 0.2 per cent gain locally.

The plunge in China’s equities followed last week’s losses of 11 percent, and hammered stock prices across Asia, as fears grew that a slowdown in China sould send the rest of the world into a recession.