Concerns about the Greek financial crisis widening to affect the global financial system prompted widespread selling of stocks in Asia on Monday while China’s volatile markets were poised to enter a bear market mainly due to domestic issues.
The region’s equities markets were the first that were able to react to the surprise announcement by Athens to call for a national referendum, shut banks and impose capital controls after the European Central Bank announced Sunday that Greece’s banks would not be receiving any more emergency loans.
The benchmark Nikkei 225 index in Tokyo was off nearly 600 points at Monday’s close – a drop of almost 2.9 percent.
South Korea’s KOSPI dropped more than 1.4 percent on the day.
There were also significant drops in stock markets from Australia to India, but the nervousness was more palpable on Chinese exchanges.
Hong Kong’s Hang Seng fell 2.78 percent, also caught in what some analysts described as “panic selling” on the Chinese mainland’s volatile bourses.
The closely watched Shanghai Composite gyrated wildly throughout the trading day, closing down 3.34 percent following a 7.4 percent plunge Friday.
The Shenzhen stock exchange’s component index dropped nearly 5.8 percent.
Shanghai, at its peak on June 12, had soared more than 150 percent over the past 12 months and has dropped 20 percent since then.
“Technically, that’s a bear market in short order,” said David Welch, head of equity sales trading for Reorient Group in Hong Kong.
A Saturday interest rate cut by Beijing failed to stem significant drops seen last week.
Analysts for months have been warning of an equity bubble in China with many inexperienced leveraged investors bound to suffer.
“As much as it may be painful to say it, I think the correction we’ve had over the last two to three weeks has been healthy because it’s taken a lot of the leverage out of the system,” Welch told VOA. “Certainly there’s going to be a lot of people who have lost a tremendous amount of money given the market’s down 20 percent and the people have been trading on leverage.”
China’s regulators have spoken of building a slow-go market for the long run and “part of that is not allowing a massive bubble to inflate and then ultimately pop,” Welch explained.
In currency trading in Asia, increasing prospects that Greece could be forced out of the euro sent the single currency falling three percent against the yen. The Japanese currency also strengthened against the dollar to reach a one-month high (of 122.10).
Gold, traditionally a safe haven in times of uncertainty, gained 0.8 percent to move above $1,184 an ounce.
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