China stocks lead Asia sell-off, oil up on Middle East fears

Hong Kong, China — Chinese stocks plunged Monday, leading an Asian meltdown on the first day of 2016 trading, as another round of weak factory data fanned fears about a slowdown in the world’s number two economy.

The plunge in mainland markets further spooked investors already nervous about a flare-up in tensions between Iran and Saudi Arabia that stirred worries about the volatile Middle East.

Authorities in China suspended trading on the country’s stock markets in the early afternoon after shares sank seven percent. 

The drop in the CSI300 index — which covers the Shanghai and Shenzhen bourses — for the first time triggered an automatic early closure under a new system to curb volatility, after an earlier 15-minute trading halt failed to stem the declines.

The sharp losses brought back memories of the summer rout that saw Shanghai crash about 40 percent and trillions of dollars wiped off valuations.

Dealers began selling immediately after data from official and private surveys of manufacturing showed activity shrinking in December. The reports are the latest to highlight weakness in the economy, which is expected to have grown in 2015 at its slowest pace in a quarter of a century.

Adding to the selling is the looming expiration of measures brought in to curb last year’s share slump.

“The market is worried about the upcoming lifting of the rule that bans shareholders from selling,” Central China Securities analyst Zhang Gang, told AFP.

The Shanghai market ended 6.9 percent lower while Shenzhen shed 8.2 percent.

Markets across Asia were stung by the losses, as well as news that Saudi Arabia had severed diplomatic ties with its old foe Iran Sunday after protesters ransacked its embassy in Tehran following the execution of a Shiite cleric.

Riyadh gave Iranian diplomats two days to leave the kingdom, while the supreme leader in Tehran said Saudi Arabia would face “quick consequences” for the execution.

Relations between Sunni-ruled Saudi Arabia and Shiite-ruled Iran have been strained for decades. The two countries have also been divided over the nearly five-year war in Syria, where Iran is backing the regime, and the conflict in Yemen where a Saudi-led coalition is battling Shiite rebels.

The developments are the latest to inflame the powder keg region and add to a list of negative news that hurt world markets over the past year, including China’s economic malaise, plunging oil prices and anaemic global growth.

‘Not good news’

“It’s going to be a testy start to the week,” said Angus Nicholson, a Melbourne-based market strategist at IG Ltd.

“The execution raises uncertainty about the oil price with concerns and tensions in the Middle East and that will be a real driving force.”

With Saudi Arabia and Iran two of the biggest producers of oil, the price of the commodity rallied Monday, having suffered a severe slump in 2015 on the back of weak demand and a global glut.

US benchmark West Texas Intermediate climbed 1.7 percent and Brent surged 1.9 percent.

Investors fled to safe investments such as the dollar and yen, sending stocks and emerging market currencies tumbling.

Tokyo’s Nikkei index tumbled more than three percent as a strong yen hit exporters, while Hong Kong was off 2.5 percent in late trade and Seoul ended 2.2 percent down.

On forex markets the dollar surged 1.3 percent against its Australian counterpart, while it was up 1.2 percent against the South Korean won and one percent against the Malaysian ringgit.

It also saw sharp gains against the Taiwan and New Zealand dollars as well as Indonesia’s rupiah and the Thai baht.

However, the greenback fell towards 119.00 yen and a two-month low, with the Japanese unit considered a safe haven investment in times of turmoil and uncertainty.

“The Saudi situation is, geopolitically, not good news,” Kengo Suzuki, chief currency strategist at Mizuho Securities in Tokyo, told Bloomberg News.

Key figures around 0710 GMT

Tokyo – Nikkei 225: DOWN 3.1 percent at 18,450.98 (close)

Hong Kong – Hang Seng: DOWN 2.5 percent at 21,374.00

Shanghai – composite: DOWN 6.9 percent at 3,296.26 (close)

Shenzhen – composite: DOWN 8.2 percent at 2,119.16 (close)

Euro/dollar: DOWN at $1.0887 from $1.0855 late Thursday 

Dollar/yen: DOWN to 119.33 yen from 120.27 yen

New York – Dow: DOWN 1.0 percent at 17,425.03 (close)

London – FTSE 100: DOWN 0.5 percent at 6,242.32 (close)