Hong Kong: Asian shares clawed their way back from early lows on Tuesday following wild swings in Shanghai, as investors were worried whether more bouts of profit-taking will spell the end of the bull market that emerged from the financial crisis.
Pressured by worries that the global economy may take longer than expected to recover and disheartened by mounting losses in Shanghai, US stocks posted their biggest one-day fall in seven weeks on Monday, with profit-taking also hitting commodities.
Chinese shares remained highly volatile, with the Shanghai composite index closing 1.4% higher after earlier hitting a two-month intraday low and dragging most Asian bourses into the red.
The index suffered its biggest single-day drop in nine months on Monday, with investors haunted by fears that China is slowly clamping down on easy money policies and aggressive bank lending.
The drop in China’s market had a domino effect on other markets, fuelling worries among some analysts that rallying asset prices have run too far ahead of economic fundamentals and weak earnings prospects.
However, one of the main drivers of the equity rally in Asia, piles of money that monetary authorities pumped into banking systems, may still have a supportive effect in coming weeks, even with asset prices extended.
“History tells us when markets rise as much as they did in the second quarter, they should come down. It’s hard to say where the floor is, but I don’t think it’s far from where we are now,” said Mark Matthews, Asia-Pacific strategist with Fox-Pitt Kelton in Hong Kong. “This is a liquidity-driven bull market. It’s not a market being driven by valuations.”
Most Asian share markets recouped early losses as the Shanghai index rebounded and investors hunted for bargains after the recent selloff.
India led gains with a 1.7% rise, followed by Singapore and Hong Kong with rises of less than 1%. South Korean shares rose 0.2%, while Australia lost as much and Taiwan shed 2.1% for its lowest close in a month.
Japan’s Nikkei share average ended up 0.2% on some late-session buying of technology shares, while the MSCI index of Asia-Pacific stocks traded outside Japan rose around 0.3%.
The ex-Japan index had tumbled 3.7% on Monday, its biggest daily decline since 30 March.
It is still up some two-thirds since 9 March, when a global equity rally began and signalled a marked improvement in investors’ comfort with taking risks for bigger returns.
The Shanghai index’s intraday 30-day volatility has jumped to the highest since 7 April in the last three weeks, though it still remains well below levels reached in the days after the collapse of Lehman Brothers Holdings Inc. in September.
“I think macroeconomic indicators in general suggest that things are improving globally and there’s no reason to be so pessimistic, but there’s not a lot we can do about market sentiment as long as stocks keep on falling,” said Noritsugu Hirakawa, a strategist at Okasan Securities Co. Ltd in Tokyo.
Profit taking has knocked the Shanghai index down around 18% in the last two weeks after it jumped at least 90% since the start of the year. But the boom in initial public offerings in China gathered pace, even if broader investor demand was cooling. Shares of brokerage Everbright Securities Co. rose 42% in their debut in Shanghai before slightly paring early gains.
Elaine Lies in Tokyo contributed to this story.