Chinese Stocks and Corporate Downgrades Push Markets Lower -- 3rd Update

By Kenan Machado Features Dow Jones Newswires

Stocks started the week with fresh selling in Asia as China's market fell anew after Thursday's slump, while indexes in South Korea and Taiwan lagged behind following downgrades to both locales' biggest companies.

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Chinese equities sent a shudder through global markets on Thursday when leading stock indexes there tumbled more than 2%. The market rebounded some Friday.

The CSI 300, which consists of the biggest stocks in Shanghai and Shenzhen, was down 1.5% ahead of the close Monday, as was the Shenzhen Composite. The Shanghai Composite, like the one in Shenzhen, was on pace for a three-month closing low with a 1.1% loss.

"It is quite clear that the People's Bank of China is trying to break the notion of an implicit guarantee" to all Chinese firms, said Xie Dongming, head of Greater China research at OCBC Bank.

He added that by raising funding costs for overleveraged and badly managed firms, the government is trying to move local markets toward global standards on pricing credit risks.

Chinese stocks have lagged behind global gains this year despite strong profit growth. Data showed Monday that industrial profits grew 25% in October from a year earlier, extending this year's strength. But Gao Ming, an analyst with China Merchants Securities, is among those expecting a slowdown to 10% to 15% next year.

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The decline in Chinese stocks rippled through the region. The Nikkei closed down 0.2% after rising as much as 0.5% shortly after the open. Investors bought safe-haven assets such as the yen, with the dollar falling to Yen111.35 from Yen111.70 earlier in the session.

Australia's benchmark also turned slightly lower for a time after initial gains; China is the country's biggest trading partner. The S&P/ASX 200 finished up 0.1%, one of the few Asia-Pacific indexes higher on Monday.

Meanwhile, New Zealand's NZX-50 climbed 0.6%, notching its first record closing high of November after posting 17 of them in October. Auckland International Airport rose 2.5%, and a2 Milk added 1.7%.

But that was a lone bright spot.

South Korea's Kospi slid 1.4% and Taiwan's Taiex dropped 1% after Morgan Stanley downgraded their stock ratings Samsung Electronics and Taiwan Semiconductor, each their respective index's largest component by far.

The investment bank says there are early signs of price pressures for NAND flash memory chips while there is less visibility for DRAM chips, which powers personal computers, "and risk of higher capacity growth may overwhelm demand growth and oversupply in 2019-2020.

Samsung Electronics ended down 5.1%, cutting the year's surge to 46%. Meanwhile, Taiwan Semiconductor shed 2.9%, reducing its advance to 31%. Both had their worst days in a year on Monday.

Amid the China selling, Hong Kong's Hang Seng Index was down 0.7%, with highflier Tencent off 1.1%. The H-share index, made up of Chinese-based firms which trade in both the mainland and the island, fell 1.3%.

The start-of-week decline for most Asian stock markets followed late-week holidays in Japan and the U.S., and came ahead of major global economic releases around the world later this week.

"We expect a steady stream of positive growth data in Asia this week--from Japan and South Korea's industrial production to Australia's capex and India's GDP," said Klaus Baader, head of research for Asia at Société Générale.

S&P 500 futures were recently down 0.1%.

In commodities, the U.S. oil benchmark pulled back some after hitting a 2 1/2 -year high on Friday. January Nymex WTI futures were recently down 0.4% at $58.69 a barrel, while Brent futures were little changed.

Grace Zhu contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

November 27, 2017 02:17 ET (07:17 GMT)