Chinese markets tumbled at the open Tuesday, but quickly erased early losses as Asian markets recovered from a sharp selloff in the previous session.
The Shanghai Composite tacked on 0.95 per cent after initially trading down as much as 3.1 per cent. The smaller Shenzhen Composite was off 0.2 per cent after initially falling as much as 5 per cent, while the CSI300 erased its opening losses of as much as 2.58 per cent to trade up 1.4 per cent. In Hong Kong, the Hang Seng Index added 0.56 per cent.
In Monday's trading session, Chinese equities plunged after feeble manufacturing surveys revived concerns over the country's economic slowdown. The CSI300 dipped down 7 per cent in afternoon trade Monday, resulting in trade being suspended for the day. The Shanghai Composite had tumbled 6.8 per cent and the Shenzhen Composite plummeted 8.1 per cent Monday.
Goldman Sachs said in a note Tuesday that other factors cited as explanations for the sell-off include market concerns over near-term liquidity, capital outflows, monetary tightening and policy stimulus inaction.
During yesterday's sell-off, China tested out its new system-wide circuit breakers linked to the benchmark CSI300 index, dominated by large cap stocks. When there is a 5 per cent decline in the CSI300 index, trading is halted for 15 minutes. When that index drops 7 per cent, the market closes for the day. Hong Kong does not have a circuit breaker.
Deutsche Bank said in a note Monday that the top 50 largest weighted constituents on the CSI300, which are mostly financials, property, and industrial names, accounted for 42 per cent of the 7 per cent loss yesterday. They are, the note suggested, more sensitive to macroeconomic developments and policy dynamics, and hence, "macro conditions and policymakers could have a greater influence on market trading."
The bank also noted that the 5 per cent/7 per cent stop-trading threshold in China is comparatively lower than other markets, adding to volatility and possibly heightening concerns on market liquidity. In the US, if the S&P 500 moves reach 7 and 13 per cent, trade is halted for 15 minutes and is then completely stopped when it hits the 20 per cent mark in either direction.
Reuters reported that China's securities watchdog, the China Securities Regulatory Commission, said Tuesday that it would continue to hone its circuit-breaker mechanism, but that its use on Monday had helped calm markets and protect investors' interests. This was at odds with the views of most market commentators, who blamed the circuit breaker for exacerbating panic selling by retail investors.
Before trading started, the People's Bank of China set Tuesday's yuan fix at 6.5169 against the dollar, compared with Monday's fix of 6.5032, representing a 0.21 per cent increase.
Other Asian equities traded mixed Tuesday with the Australian ASX 200 index down 51 points, or 0.97 per cent, at 5,219.5. In Japan and South Korea, markets erased early losses to trade positively, with the Nikkei 225 up 0.28 per cent at 18,502.8 and the Kospi up 0.61 per cent at 1,930.52.
Oil prices saw some uptick during Asian trade with the US West Texas Intermediate (WTI) futures up 10 cents, or 0.27 per cent, at $36.85 a barrel. The global benchmark Brent was up 12 cents, or 0.32 per cent, at US$37.32 (S$53.12) a barrel. In U.S trading hours, US crude was at $36.76 a barrel and Brent at $37.24 a barrel.
In Australia, resource plays remained under pressure with shares of Rio Tinto down 1.14 per cent. BHP Billiton erased morning losses to trade up 0.22 per cent while other miners remained mostly in the red. Energy stocks saw losses between 1.25 and 3 per cent as a result of falling oil prices overnight, while gold miners traded mixed, with Newcrest up 2.83 per cent.
Electronics retailer Dick Smith, which had asked for a trading halt Monday, announced it had appointed voluntary administrators after it was unable to secure short-term funding. Its stock was de-listed only two years after it made its debut on the Australian stock exchange.
Meanwhile, the Australian dollar traded lower at 0.7184 against the US dollar.
Japanese blue chip stocks traded mostly lower, with the likes of Toyota and Honda falling more than 1 per cent each. The dollar-yen pair, which fell below the 120-benchmark against the dollar in the previous session, was at 119.50 on Tuesday morning, with the Japanese currency likely boosted by safe-haven flows.
In South Korea, Samsung Electronics shares erased losses to trade up 017 per cent. In the previous trading session, the share was down over 4 per cent after the company's chief executive, Kwon Oh-hyun, warned employees of challenging conditions ahead, due to low global growth and greater competition. Samsung is expected to issue earnings guidance for the fourth quarter ended December on Friday.
CapitaLand shares were up 0.3 per cent in morning trade.
Arthur Lang, CapitaLand chief financial officer, noted that the company, which has around 50 per cent of its assets in China, had guided that it expected 14 billion yuan in residential sales on the mainland in 2015. While he told CNBC he couldn't provide the exact figure as full-year results weren't released yet, "if we achieve the guided 14 billion yuan (S$3.06 billion), it would be the highest ever we've achieved in our 14 years there."
Elsewhere, low-cost carrier Tiger Airways saw its shares up 9.76 per cent after reports said Singapore Airlines was revising its initial offer price for the airline from an initial S$0.41 a share to S$0.45 a share. Singapore Airlines shares traded up 0.18 per cent.
Overnight, US and European equity markets were also hammered on renewed concerns of a global economic slowdown and increased tensions in the Middle East. The drop in Chinese stocks also put pressure on sentiment.
The Dow Jones Industrial Average closed 276 points, or 1.5 per cent, lower at 17,148.94, while the S&P 500 shed 31.28 points, or 1.5 per cent, at 2,012.66. The Nasdaq Composite was down 104.32 points, or 2 per cent, at 4,903.09. The Dow had been down more than 2.5 per cent in intraday trade before recovering.
In Europe, major markets all ended more than 2 per cent down.
No major economic data is due Asia Pacific today.