By Gregor Stuart Hunter
HONG KONG--China's markets were roughly flat Wednesday as
investors took stock of a choppy period of trading over the past
two weeks that has rolled back some of the gains from a yearlong
bull market.
Global markets stabilized even as Greece defaulted on its
EUR1.55 billion loan ($1.73 billion) to the International Monetary
Fund, with creditors rejecting a last-ditch effort to buy more
time. The euro was flat in early Asia trade, trading down 0.1% to
the U.S. dollar at $1.1130.
The Shanghai Composite Index was down 0.4% at 4260.13 midday,
while the smaller Shenzhen market was 1.2% higher and ChiNext board
was up 3.8%.
The Shanghai index is still off almost 18% from a mid-June high.
The index rallied 5.5% on Tuesday, which some market participants
put down to state entities buying blue-chip stocks. Beijing also
announced a raft of policies aimed at soothing market tensions,
including plans to allow the state pension fund to invest in stocks
and lower the stamp duty on share purchases. Over the weekend, the
central bank cut interest rates, its fourth such move since
November.
Some observers, however, said they didn't expect a prolonged
rally to take hold. Market sentiment remains weighed down by
expectations that investors who have taken on huge amount of debt
to fund stock purchases during the rally will be forced to sell
stocks in coming weeks to pay back loans to brokers, exacerbating
market weakness.
"We don't think that the deleveraging process in the stock
market has run its course and the market may stay volatile in
coming weeks," said analysts from Bank of America Merrill Lynch.
"Longer term, the psychological damage from the two-week long sharp
market decline may linger for a while. This means that any market
rebound will unlikely be strong in our view."
Weakness in China's economy is another drag on the market. A
private sector gauge of Chinese manufacturing conditions compiled
by HSBC and Markit released Wednesday fell to 49.4 compared with
49.2 a month earlier, missing a preliminary estimate, and below the
50-mark that separates contraction from expansion.
Exports from the region have been dismal in recent months amid
China's slowdown, patchy demand in the U.S. and Europe's fragile
recovery. Nations that export heavily to China also are feeling
pain: South Korea's manufacturing purchasers index slipped to 46.1
in June from 47.8 in May, the deepest contraction since September
2012. On Tuesday, South Korea reported its exports fell for a sixth
straight month by 1.8% in June.
In Japan, the Nikkei 225 Stock Average rose 0.2% after the Bank
of Japan's quarterly Tankan survey showed improving confidence
among big manufacturers in the second quarter.
"The default itself had been expected from last weekend and
therefore should not result in any new shock to the stock market,"
says Hideyuki Ishiguro, strategist at Okasan Securities. "Investors
remain wary of taking on any new risk, however, and that should
limit any gains today until Sunday's Greek referendum, on whether
or not to accept conditions for another bailout, is done."
South Korea's Kospi Composite gained 1% while Australia's
S&P/ASX 200 rose 0.4%. Hong Kong's market is closed for a
holiday.
--Bradford Frischkorn contributed to this article.
Write to Gregor Stuart Hunter at gregor.hunter@wsj.com