Tokyo: Chinese stocks bounced back on 28 February after their biggest decline in a decade, but stock markets in Asia and Europe fell for a second day amid investor jitters about possible slowdowns in the Chinese and US economies.
Shares in Japan, South Korea, Singapore, India, Australia and the Philippines all tumbled more than 2% after dismal overnight losses on Wall Street, which had its worst day since the 11 September 2001 terrorist attacks.
While several Asian markets trimmed big early losses by afternoon, nervous investors were still wary of whether the slump marks the beginning of a downward spiral or just a one-time jolt to cool overheating markets.
“We don’t need to worry about a big reduction from here, but this correction could continue for the next couple months,” said Shinichi Ichikawa, an equity strategist with Credit Suisse First Boston here.
In China, the Shanghai Composite Index rose 3.9% to close at 2,881.07, rebounding from its 8.8% plunge on 27 February, its biggest drop in a decade.
Bullish comments in the state-controlled media appeared to reassure jittery domestic investors, who account for virtually all trading. China will focus on ensuring financial stability and security, the official Xinhua News Agency cited Premier Wen Jiabao as saying in an essay due to be published in 1 March issue of the Communist Party magazine Qiushi.
Authorities also denied rumors of a 20% capital gains tax on stock investments speculation that had played a role in 27 February’s plunge.
Still, investors dumped stocks across much of Asia, partly unnerved by the 3.3% drop in the Dow Jones industrial average.
Comments from former US Federal Reserve Chairman Alan Greenspan, who said a recession in the US, a huge export market for Asian companies, was “possible” later this year, also unnerved investors.
Japan’s Nikkei 225 stock index tumbled 515.80 points, or 2.85%, to 17,604.12, while Philippine stocks plunged 7.9%, their worst drop since 1997, at the height of the Asian financial crisis.
Australian stocks closed down 2.7% after falling as much as 3.5%, while Singapore’s Straits Times Index was down 3% to 3,136.58 points, after sinking as much as 5.6% earlier.
In Europe, Britain’s benchmark FTSE 100 Index was down 1% to 6,224.40 in morning trading, while France’s CAC 40 Index lost 2.3%.
Many Asian markets were due for a correction after their recent spectacular performance, analysts said.
Benchmark indexes in China, Australia and Singapore had all hit records in February. Before this week’s plunge, Malaysian stocks had gained 17% this year, while Philippine shares had climbed about 12%.
On 28 February, sell-off was a limited, knee-jerk response, said Kiichi Fujita, an equity strategist with Nomura Securities here. “It’s a bit of an overreaction,” he said.
Other equity analysts said the market’s volatility could trigger more selloffs, despite sound economic data.
“A lot of that exuberance about just buying anything at all cost just starts to evaporate if the market has big falls like this,” said David Halliday, associate director at Macquarie Equities. “I think the important thing to note is that this hasn’t been triggered by an economic, financial or political crisis.”
Japan’s Chief Cabinet Secretary Yasuhisa Shiozaki echoed that sentiment, trying to quell concerns about the Tokyo market by stressing that overall fundamentals in Japan were still strong.
“On a broad perspective the corporate sector continues to perform well,” Shiozaki said. “A long-term economic recovery is continuing.”
Australian Treasurer Peter Costello predicted the plunge in China’s share market would trigger “volatility on equity markets for some time”.
But his overall assessment of China’s economy was positive, telling reporters the Asian giant would continue to grow, albeit “in fits and starts”.
Some regional brokers said they saw an element of panic selling among retail investors but that more experienced investors were sitting it out. Other market players were on the look out for bargain hunters to emerge.
“If your target is gains by the end of 2007, this is a good chance to buy,” said Credit Suisse’s Ichikawa. “But if it’s the end of March, I can’t say that.”