DHAKA: Asian markets struggled to shake off a global selloff Monday, with Shanghai leading the region lower as investors assessed Beijing’s latest debt-related reforms.
The Shanghai Composite Index was down 2% to 3166.40, after Beijing placed a cap on debt issued by local governments over the weekend.
The Hang Seng Index fell 0.3% during the Monday morning session. Its near 13% month-to-date loss puts it on track for its worst monthly performance since September 2011.
Chinese lawmakers placed a 16 trillion yuan ($2.5 trillion) cap on local government debt, the latest move to address a slowing economy increasingly burdened by heavy borrowing. The Standing Committee of China’s National People’s Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to amass this year, the official Xinhua News Agency said late Saturday.
“Given the runaway spending in local government, it’s viewed as a positive” for markets, said Michael W. Parker, strategist at Bernstein Research. Still, “there’s a tremendous lack of confidence in terms of [China’s] policymaking. The devaluation has rattled confidence globally.”
Monday’s losses were to be expected given the large rise in Chinese stocks at the end of last week, he added. The Shanghai Composite bounced 10% on Thursday and Friday, amid suspected government buying.
Elsewhere, the Nikkei Stock Average and S&P ASX 200 were each down 1%. South Korea’s Kospi was down 0.4%. Currency markets were mixed.
Uncertainty about whether the U.S. will raise interests this September as many had expected remains a huge weight on the region. The move is expected to introduce more wild swings after China was at the epicenter of a global selloff last week.
Global concerns over China’s growth and uncertainty over the Fed, along with a still-disappointing outlook for commodity prices, is likely to weigh on further gains, said Angus Nicholson, a market analyst at IG in Melbourne.
During an economic symposium over the weekend, Stanley Fischer, the U.S. Federal Reserve’s No. 2 official, said the central bank hasn’t settled on whether to raise interest rates next month.
BDST: 1136 HRS, AUG 31, 2015
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