China Stocks Close down 6.4% amid Oil Rout, Fed-Ticipation

China’s benchmark index tumbled over 6% Tuesday, after Monday a renewed plunge in oil prices kept investors stay away from the global market.

The benchmark Shanghai Composite Index ended down 0.5 percent, having been up in the morning and as much as 4 percent lower during the day.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen dropped 6 percent to 2940.51, also its lowest since the beginning of December 2014. The central bank typically does so at this time of year to ensure adequate liquidity in the country’s banking system, as demand for cash rises around the holiday. Beijing intervened to stem that rout and orchestrate a recovery of sorts, but anyone who mistook that for a bottom and bought in would have lost their shirt again this month.

“We could see a short-term rally”, Angus Nicholson, an analyst at IG Markets Ltd.in Melbourne, said by phone.

“There’s no good news in sight，while investors are being affected by the global “risk-off” mood”. Oil prices have also resumed their slide to roughly $29.42 a barrel, after skyrocketing 23 percent in 48 hours last week.

“Volume is getting very thin, as there are hardly any fresh inflows, and the process of deleveraging is continuing”, said Chang Chengwei, analyst at brokerage Hengtai Futures.

Tuesday’s loss was the steepest since Jan 7, when the Shanghai gauge plunged 7 per cent, the second sell-off of more than 6 per cent in a week that prompted the government to cancel its circuit breakers programme after four days.

Investors across the world will hang on whether the market chaos of the last few weeks and concerns over China’s slowing economy might blow the U.S. Federal Reserve off its proposed course of gradual interest rate hikes.

Cynthia Jane Kalasopatan, of the Singapore Treasury Division of Mizuho Bank, said: “Concerns about a supply glut in global oil markets, with Iran oil adding to existing stock along with uncertainties in China were probably the key factors” in the oil price drop.

Soros, dubbed “the man who broke the Bank of England” when he made more than US$1 billion from short-selling the pound in 1992, has said he is betting against the S&P 500, commodity-producing countries and Asian currencies, although he has not specifically mentioned the yuan or Hong Kong dollar.

Some investors have been hoping that China would lower the amount of reserves that banks have to hold before the Chinese Lunar New Year starts on February 7.

Investors were also concerned about volatility in the yuan as that would trigger capital outflows, market watchers said.

“In the short term, [China’s central bank] will most likely continue to inject liquidity in the system via open market operations instead of [reserve requirement ratio] cuts to avoid pressuring further capital outflow”, said Francois Perrin, portfolio manager for East Capital Asia, in a note to his clients.