China Sell-Off Sees Markets Close At Lowest Point Since 2014

China Market Sell-Off

China’s markets dipped again Tuesday as fears over falling oil prices drove shares to their lowest points since 2014.

China’s benchmark Shanghai Composite Index closed down 6.4 percent to 2749.79 while the CSI300 index of major Shanghai and Shenzhen firms closed at 2940.51, down 6 percent. Both are 14-month lows for the indexes, which haven’t seen these levels since December 2014.

Yang Hai, an analyst with Taiyuan Securities, told Reuters that “[t]here’s no good news in sight, while investors are being affected by the global ‘risk-off’ mood.”

Oil continued its swings on Tuesday, trading slightly up for a bit in the early going before dropping back down. Monday saw oil prices falling again after the news from Iraq that the country had seen another record month of production in December. Concerns over persistent oversupply erased gains made late last week and returned oil to its downward trend.

UBS’s Joshua McCallum wrote Monday that the swings in oil prices could more a function of government financial decisions than an indicator of global economic health.

“The biggest single decisions are by the sovereign wealth funds (SWFs). And many of those SWFs are from oil exporters, who are facing the biggest squeeze on their budgets in living memory. When governments back home need their cash, they take money out of their sovereign wealth funds. That often means liquidating the most risky parts of the portfolio: equity and credit. These flows could go a long way to explaining why the market move has been so large. And once there are big moves, they can often take on a life of their own.”

Because of China’s unique circumstances – its economy is freer than it once was, but still largely under the control of its government – fluctuations in its markets have been not been considered good measures of broader economic conditions. Instead, many observers see the sell-offs as part of the herd mentality that marks Chinese investment.

The Pandemic Economy

As Yang, the Taiyuan Securities analyst said, “We’ve seen another stampeded driven by panic.”

Still, Chinese markets have seen 22 percent of their value lost in 2016 alone. That comes after the wild roller coaster ride of the second half of 2015, kicked off with a 40 percent drop in the summer.

In what could be a reaction to the tumultuous market movements of recent months, China and Japan also announced Tuesday an effort to coordinate economic policy decisions.

Written by Gene Giannotta


Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.