Chinese stocks fell sharply on Wednesday, posting their biggest drop in a month amid speculation that the equities rally of October had gone too far.
The Shanghai Composite Index plunged 3.1% to 3,320.68, its biggest drop in five weeks. The CSI 300 Index, which tracks stocks traded in Shanghai and Shenzhen, fell 2.9% to 3,473.25.
Chinese stocks were under pressure after a heavy wave of selling in small-caps in the afternoon session. Investors also weighed whether the huge rally in equities this month had been overdone. As of Tuesday, shares traded on the Shanghai Composite Index had increased more than 12% in October.
Elsewhere in Asia, Japanese stocks traded higher after weaker than expected trade data bolstered the likelihood of additional stimulus from the Bank of Japan.
Tokyo’s Nikkei 225 Index jumped 1.9% to 18,554.28, its highest close in six weeks.
On Wednesday Japan said exports rose only 0.6% in the 12 months through September, only a fraction of the previous month’s 3.1% gain and well below forecasts calling for 3.4%. On the other hand, imports plunged 11.1% over year-ago levels after falling 3.1% in August.
The Bank of Japan is expected to be strongly considering adding additional stimulus on top of its massive quantitative and qualitative easing program. According to analysts, the BOJ may formally announce further stimulus plans at next week’s policy meeting.
Stocks in Europe rebounded after declining on Tuesday, with London’s FTSE 100 Index gaining 0.4%. The German DAX posted a 1% rally.
The pan-European STOXX 600 Index advanced 0.3%.
Slumping Japanese trade data weighed on global energy prices on Wednesday. International benchmark Brent crude slipped 39 cents or 0.8% to $48.32 a barrel on the ICE Futures exchange in Europe. US benchmark West Texas Intermediate (WTI) was also down 74 cents or 1.6% at $45.55 a barrel.
Oil prices were under pressure earlier in the week after Iran’s oil minister said his country was ready to boost production by 500,000 barrels a day once sanctions were lifted. Iran reached a historic nuclear deal with six world powers in July that would limit Tehran’s enrichment capacity in exchange for the termination of all nuclear-related economic sanctions. Investors are concerned that higher Iranian oil exports will add to the existing supply glut that is wreaking havoc on global oil prices.
Based out of Toronto, Canada, Husni Sam Borji is senior macroeconomics analysts who contributes regularly to TradersDNA, where he examines the global financial markets. Husni Sam has authored dozens of government reports and industry whitepapers, as well as thousands of financial articles. Husni Sam holds a BA from the University of Windsor and a Master’s degree in Economic Public Policy from McMaster University.
His expertise includes macroeconomics, fundamental analysis, industry research and global political economy.