By Gregor Stuart Hunter
Chinese markets faced a volatile start to trading on Tuesday
morning as a selloff deepened in small-cap stocks, as other markets
in Asia shrugged off concerns about a Greek default.
The Shanghai Composite fell as much as 1.5% at the open, then
veered between gains and losses, a day after a selloff that thrust
the benchmark into a bear market, defined as a loss of more than
20% from its high reached on June 12. The index was last down
0.7%
Chinese authorities have tried to draw a line under the
declines. The central bank cut interest rates over the weekend and
late Monday the Finance Ministry announced that the state's pension
fund could be allowed to invest up to 30% of its net asset value in
securities
The smaller Shenzhen market fell 2.9% with the ChiNext board,
which is composed of small-cap companies, down 3.9% after losing
more than a third of its value from its peak earlier this
month.
With investor confidence likely to remain fragile, ING said
investors should watch for weakness in China spilling over into
other markets.
"Controls on capital flows insulate China's financial markets
from contagion due to volatility in global financial markets,"
analysts from ING wrote in a research note. "The controls don't
insulate global financial markets from contagion emanating from
China."
In Hong Kong stocks rebounded, with the Hang Seng Index up 0.4%,
while listings of Chinese companies, known as H-shares, rose
0.7%.
Japan's Nikkei 225 Stock Average rose 0.5% in early trading
while the S&P/ASX 200 index gained 0.2% as the effects of a
market rout in the U.S., with the S&P 500 sinking 2.1%, seeming
to abate.
The euro recovered slightly from a selloff on Monday, rising
0.2% to 1.1197 against the dollar even as Greece looks set to
default on its payment to the International Monetary Fund due
Tuesday. Still, it fell 0.3% against the Japanese yen in early
Asian trade as investors seek safer assets.
The market appears "to be placing its faith in the [European
Central Bank] to 'do whatever it takes' to protect the euro,
whatever the outcome in Greece," says BNZ foreign-exchange
strategist Kymberly Martin.
Rebecca Howard contributed to this article.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com