Market commentary: Stocks drop across the globe amid concerns in China

This morning news emerged that China moved to support its sinking stock market as state-controlled funds bought equities. The securities regulator also signaled that a selling ban on major investors will remain beyond this week’s expiration date according to mainstream sources. 

The move came after a 7%  tumble in the CSI 300 Index on Monday triggered a market-wide trading halt. It is reported that the China Securities Regulatory Commission asked bourses verbally to tell listed companies that the six-month sales ban on major stockholders will remain valid beyond 8 January.

Chinese policy makers, who took unprecedented measures to prop up stocks during a summer crash, are stepping in once again to combat a rout that erased $590 billion of value in the worst- ever start to a year for the nation’s equity market.

In today’s session China’s CSI 300 index rose 0.3 percent at the close, after earlier falling more than 2 percent. The plunge on Monday triggered the nation’s circuit breakers on their first day in effect, dealing a blow to regulatory efforts to calm one of the world’s most volatile bourses. Authorities are trying to prevent market turmoil from eroding confidence in an economy set to grow at its weakest annual pace since 1990.

State funds were controversially used to prop up shares as the CSI 300 plunged as much as 43 percent over the summer. State funds probably spent $236 billion on equities in the three months through August, according to Goldman Sachs.

China also took steps to ease borrowing costs and support the yuan today with the central bank conducting the biggest reverse-repurchase operations since September, adding funds to the financial system to keep a lid on money-market rates.

Geopolitical concerns between Saudi Arabia and Iran did little to help temper the negative tone as did some much softer than expected manufacturing data out of the US. The end result was some hefty falls across the globe. The Stoxx 600 closed down -2.50% - its worst start to a year ever - while the DAX was down -4.28% for its worst fall since late August. The S&P 500 (-1.53%) managed to recover about a percent into the close but still suffered its worst start to a year since 2001 and the sixth-worst ever.

The distinctly risk-off start to the year saw a decent bid fuel across core Government bond markets. 10y Treasury yields finished the session down 2.7bps at 2.243% although did temper a move lower of as much 7bps mid-way through the session. 10y Bund yields were down over 6bps and are sitting around 0.565% as well as peripheral countries including Italy and Spain which are now trading 1.518% and 1.684% respectively.

Much like the equity moves, credit markets were hard hit also with Crossover nearly 19bps wider and CDX IG over 2bps wider in the US. Gold rallied +1.23% while Oil finished - 0.76% lower and below $37, in  a session dominated by volatility related to the tensions in the Middle East.

This article was issued by Simon Psaila, Treasury Officer at Calamatta Cuschieri. For more information visit, www.cc.com.mt. The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.