Chinese stocks took a beating on Tuesday, with the Shanghai Composite plunging to its lowest level in 14 months after a late selling frenzy driven by weak oil prices pounded the equity markets.
The Shanghai Composite Index fell 6.4% to 2,749.79, its lowest close since December 1, 2014. With the decline the Shanghai Composite Index is down a staggering 22.3% since the start of January.
The Shanghai Shenzhen CSI 300 Index also fell 6% to 2,940.51.
The late selloff was triggered by a renewed slump in energy prices, which kept investors concerned about global growth prospects. Oil prices fell more than 6% on Monday and were down below $30 a barrel early on Tuesday.
West Texas Intermediate (WTI) crude bottomed out at $29.25 a barrel on Tuesday. It would eventually consolidate above the $30 a barrel mark. Global benchmark Brent crude touched a daily low of $29.27 a barrel before recovering around $30.67.
Other Asian markets were also down on Tuesday. Japan’s Nikkei 225 fell 2.4% to 16,708.90. In Hong Kong, the Hang Seng fell 2.5% to 18,860.80.
Volatility in China’s equity markets shows no signs of abating, as investors continue to wait for Beijing to shift monetary policy. According to some analysts, the People’s Bank of China (PBOC) has been unable to keep risks at bay in the midst of a massive transition away from export-driven growth for the world’s second-largest economy.
China’s gross domestic product (GDP) – the value of all goods and services produced in the economy – expanded 6.8% in all of 2015. That was the slowest growth rate in 25 years. Growth is forecast to weaken even further over the next two years.
With the Shanghai Composite plumbing new lows, investors have started parking their assets into gold and other safe-havens. Gold for April delivery rose $8.40 or 0.8% to $1,113.70 US per troy ounce, its highest level on the Comex division of the New York Mercantile Exchange since early November. Gold futures have risen more than $50 since the start of the year in the wake of extreme volatility in the global stock markets.
Other precious metals also rose on Tuesday. Silver futures climbed 15 cents or 1.5% to $14.41 an ounce. Platinum spot was up $6.95 or 0.8% at $865.75 an ounce.
The US dollar, which normally tracks inversely with precious metals, was little changed against a basket of world currencies. The currency markets could experience heavy trading volumes in the latter half of the week as investors react to the Federal Reserve’s policy statement, which is scheduled for release on Wednesday afternoon.
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.