Asian stocks edge higher day after China plunge

The latest drop appears largely due to the same concerns: a slowdown in the world’s second-largest economy, greater investor caution after markets hit dizzying heights past year, and Beijing’s attempts to unwind controls on trading.

A currency trader looks at the computer monitors at the foreign exchange dealing room in Seoul, South Korea, Monday, Jan. 4, 2016.

All eyes were on China after stocks tanked on the first trading day of the year, triggering a “circuit-breaker” that suspended equities trade nationwide for the first time.

US stocks dropped sharply in early trading Monday morning after a plunge in China triggered by weak Chinese manufacturing data and escalating tensions in the Middle East. The Dow Jones industrial average sank 2 per cent. China’s main index plunged lost 7 per cent, forcing an emergency trading suspension.

The gloomy start to the New Year saw the Dow close down more than 276 points, or 1.6 percent, after tumbling more than 470 points in midday trading.

China’s response to the summer market crash was seen by many inside the industry as heavy-handed, as it included suppression of futures and derivatives markets and instilled an atmosphere of fear at brokerages as regulators pulled in executives for questioning about insider trading and “malicious short-selling”. “This isn’t a blip”. Japan’s Nikkei 225 added 0.3 percent to 18,514.33 while Australia’s S&P/ASX 200 slipped 0.9 percent to 5,224.40.

Adding to investors’ concerns were new tensions in the Middle East that could threaten oil supplies.

Oil was near flat having been up as much as 4 percent at one stage amid a brewing dispute between Saudi Arabia and Iran. The Standard & Poor’s 500 index lost 43 points, or 2.1 percent, to 2,000. The Nasdaq Biotechnology Index sank 3.2 percent, the most in a month to weigh on health-care.

The selling in China spread quickly across markets in other Asian countries, then to Europe. Germany’s DAX fell a massive 4.3% as the Spanish IBEX lost 2.4%.

Huang Cengdong, an analyst for Sinolink Securities in Shanghai, said selling accelerated as investors tried to lock in trades before trading was halted.

If faced with disappointing economic reports in the USA, combined with bouts of market volatility could prompt the Fed to put off future rate hikes, some analysts have said. Also, many automakers and consumer goods companies are hoping to sell more to increasingly wealthy Chinese households.

The weak US manufacturing report “is not a recession warning for the overall economy, but factory output is clearly sputtering and will not be one of the much-needed engines for growth this year”, Rupkey said. On Monday, new data showed that the manufacturing sector in the US contracted at the fastest pace in six year in December.

After the Chinese stock market started 2016 with a plunge that unnerved investors globally, here are some questions and answers about the turmoil.

Ernie Cecilia, chief investment officer of Bryn Mawr Trust, warned that investors shouldn’t overreact to Monday’s drops. Crude prices held steady in Asian deals after ending a choppy session lower on the first trading day of 2016 yesterday. A 7% move stops trade for the day.

“Oil markets will be concerned that this could be an incremental step in a deteriorating political situation that might ultimately threaten world oil supply”, Ric Spooner, chief analyst at CMC Markets, said in a commentary. The yield on the 10-year Treasury note fell to 2.21 percent from 2.27 percent. Brent crude, used to price worldwide oils, rose $1.60, or 4 per cent, to $38.86 a barrel in London.

Under the Indian rules, a rise or fall of 10 per cent in benchmark index triggers a trading halt across the market for 45 minutes, if such a movement takes place before 1 pm, while halt is of 15 minutes, if a 10 per cent movement happens between 1 pm and 2.30 pm.