Stock market takes drubbing, endures worst day in 18 months

Relatively few Chinese are invested in the stock market, and the vast majority of Chinese companies still have access to financing.

“The market will trend lower“, said Ben Kwong Man-bun, KGI Asia executive director and head of research, given that the negative sentiment is likely to prompt more investors to cash out.

Japan’s Nikkei 225 index fell 2.98%, closing at a three month low.

Analyst Connor Campbell at spread-betting firm Spreadex said: “Another tumble by the Shanghai Composite merely reinforced the idea that the Chinese government is struggling to provide a tourniquet for its headline index”. The index fell to its lowest level since 2009, spooking investors. Australia’s S&P ASX 200 was off 2%.

The benchmark Hang Seng Index slid 1.77 percent, or 410.38 points, to end at 22,757.47, after trading between 22,610.53 and 23,033.97. Hong Kong shares are headed for a 6.7% loss this week, the worst weekly performance since 2011.

Since June 12, the Dow Jones Industrial Average has posted a loss of 4.1%.

Investors say China’s stock markets – which were never for the faint of heart – have become dysfunctional since the government’s massive and unprecedented rescue effort.

Sydney fell 1.70%, or 91.6 points, to 5,288.6, dragged down by banking and resources shares, while Seoul dipped 1.28%, or 24.83 points, to 1,914.55.

Economists believe the Fed will probably raise rates twice this year, with the first hike coming in September, according to the most recent Reuters poll. “Concerns about the global economy are a burden, and cheaper oil increases concerns about global growth“.

There are also concerns of fresh capital outflows triggered by a sharply weaker yuan, after Beijing devalued the currency last week, but some analysts expect China to launch policies to ease liquidity and aid the economy. The currency can trade within a 2% band above or below that.

Investors flocked to haven assets.

CURRENCIES: The U.S. dollar weakened to 124.300 yen from 124.391 yen while the euro strengthened to $1.104 from $1.103. Bond prices and yields move inversely.

Hong Kong carrier Cathay Pacific fell 3.3 percent, following a downgrade by Credit Suisse. Signs of government buying have appeared at that price on the Shanghai Composite at least four times over the past six weeks.

China Investment Corporation is the nation’s sovereign fund.

“The market is a bit nervous…but I don’t see a collapse here”.

US benchmark West Texas Intermediate (WTI) for October delivery, a new contract, lost 54 cents to $40.78 a barrel in afternoon trade, while Brent crude for October tumbled 62 cents to $46.00 a barrel.

Fiona Law contributed to this article.