Asian shares follow Wall St higher but China fears linger

August 27, 2015
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World markets are nervous about signs that China's economy, the world's second-largest and accounting for some 13% of global output, is slowing more than previously thought/AFP
World markets are nervous about signs that China’s economy, the world’s second-largest and accounting for some 13% of global output, is slowing more than previously thought/AFP

, SHANGHAI, Aug 27- Stocks followed Wall Street higher on Thursday, with Shanghai surging after days of wild swings, but dealers cautioned that the spectre of the slowing Chinese economy meant more turbulence lay ahead.

US shares snapped a six day losing streak on Wednesday after one of the most senior officials in the Federal Reserve said the turmoil that has gripped world financial markets had weakened the case for a rate rise in September.

Concerns the US could raise rates as early as next month have been heaping pressure on world markets already nervous about signs China’s economy — the world’s second largest, accounting for some 13 percent of global output — is slowing more than thought.

But investors cautioned the rout, which wiped $8 trillion off world shares in just over two weeks and battered commodities and emerging market currencies, was far from over, predicting markets would continue their roller coaster ride.

“Investors are definitely doing some bargain hunting, with the gains in the US boosting investor confidence,” Ang Kok Heng, chief investment officer at Phillip Capital Management, told Bloomberg News.

“Volatility has somewhat stabilized, but with swings in emerging markets, it could happen again.”

Shanghai led the charge, closing up 5.34 percent, or 156.30 points, at 3,083.59 — ending their worst five-day rout for almost two decades and breaking above the psychologically key 3,000 point level.

Tokyo shares closed up 1.08 percent, Sydney added 1.17 percent and Seoul gained 0.73 percent. Hong Kong rose 3.10 percent by late afternoon.

Europe’s main stock exchanges jumped at the open, with London, Frankfurt and Paris all surging more than 2.5 percent in opening trade.

– ‘Concerned about the outlook’ –

Asian shares had ended the day mixed on Wednesday after a volatile session that saw Shanghai veer wildly between losses and gains as dealers weighed news that China’s central bank had cut its key rates and freed up cash for banks.

The measures — the second such combo move in two months — are not only aimed at boosting cash flow in China, but also at reviving confidence that Beijing can steer the economy away from a hard landing and keep global growth on course.

On Thursday, the central bank also cut the yuan to a four-year low against the US dollar after a shock devaluation on August 11 compounded fears growth is undershooting expectations.

Shanghai stocks have been on a roller-coaster ride after a debt-fuelled, year-long rally collapsed in June, prompting Beijing to unleash unprecedented measures to shore up the market — including buying up shares.

While the slump in Shanghai may have a limited impact on the broader economy it reflects investors’ views that the sky-high valuations of quoted companies are not justified.

The turmoil in Shanghai has affected global markets to the point where William Dudley, the head of the New York branch of the Fed, on Wednesday said it had weakened the argument for a September US rate rise.

“The slowdown in China could lead… to a slower global growth rate and less demand for the US economy,” he said.

“We’re concerned about the outlook, how is the economy going to perform in the future.”

 

– ‘Feeling of relief’ –

 

While signs the US economy is strong are a plus for world growth, a rate hike would likely strengthen the greenback and so make trade in dollar-priced products, from food to oil, more expensive for international buyers.

The problem is particularly severe for emerging market countries that produce commodities, such as Russia or Brazil, whose currencies fall along with demand for their products, making it harder to service their dollar-denominated debt.

“The consensus now is that a September rate hike probably won’t happen,” Mitsushige Akino, an executive officer at Ichiyoshi Asset Management, told Bloomberg News.

“This means we get to keep the excessive liquidity that’s been supporting markets for a little longer, so there’s a feeling of relief.”

In Tokyo currency trading, the dollar bought 120.28 yen up from 119.98 yen in New York.

The euro was stronger at 136.17 from 135.72 yen. The 19-nation euro fetched $1.1321, up from $1.1312 in US trade.

Oil also climbed after a US energy report showed a dip in crude inventories but barely any decline in production, despite a steep drop in world prices.

US benchmark West Texas Intermediate was trading at $39.68, compared to to $38.60, while Brent crude was at $44.28, from $43.14.

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