Asian markets were roiled Monday, as China's stocks closed in bear-market territory, and uncertainty about Greece shook sentiment across the region.
A move by China's central bank over the weekend to cut interest rates failed to give a sustained lift to China's main stock market, which has fallen 21.5% from a high on June 12, crossing the 20% threshold that defines a bear market. Stocks have been under pressure over the past two weeks after a yearlong debt-fueled rally.
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The Shanghai Composite Index closed down 3.3% after rising more than 2% at the open, while the smaller Shenzhen market ended down 6.1%. The ChiNext board, which consists of small-cap companies and is sometimes known as China's Nasdaq, ended the day down 7.9%.
In Hong Kong, the Hang Seng Index fell 2.6%, its biggest one-day loss in more than a year, while offshore listings of Chinese companies, known as H-shares, sank 3%
"I prefer staying on the sidelines for now because the market still looks very volatile," said Frank Zhuang, a 43-year-old retail investor in Nanjing. "It's still too early to say any rally would be sustainable because our economy is really weak," he added.
Other Asian markets fell after Greece shut its banking system. Australia's S&P/ASX 200 index fell 2.2% and Japan's Nikkei 225 Stock Average fell 2.9% on the news from Greece.
The yen strengthened 1.7% against the euro, as investors piled into the Japanese currency, which is considered a safe-haven in times of financial stress.
Gold prices are up 0.5%, after paring earlier gains, at $1,179.10 per troy ounce, while Brent crude was down 2.1% at $61.93 a barrel.
Malaysia's ringgit led losses for currencies in Asia against the U.S. dollar. The ringgit fell to its weakest in almost a decade against the U.S. dollar, earlier Monday, while South Korea's won touched its weakest in over two months.
"Knee-jerk frustration over Greece is roiling markets globally. That may continue for a few days--for investors long the market, it makes sense to ride out the storm," said CLSA equity strategist Nicholas Smith.
Some analysts warned that selling in China could continue Monday as investors who have borrowed heavily to fund stock purchases-- through taking on margin debt--are forced to sell to repay brokers.
"Things don't look settled at all and some institutional investors are still paring their positions. The monetary easing measures aren't enough to more than offset the panic in the past two weeks," said Zhang Gang, senior analyst at Central China Securities.
In an apparent effort to calm the market, the China Securities Journal, a state-run publication, published an editorial earlier Monday with the headline "China's Stock Market Is Facing a Thirty Year Golden Age."
The Shanghai Composite Index, which fell 7.4% on Friday, is down 19% from a recent high on fears the market has risen too rapidly on the back of heavy borrowing. The smaller Shenzhen market and the ChiNext board have already fallen more than 20% to enter a bear market.
"Friday's dramatic selloff can still trigger waves of margin calls on Monday," said Hao Hong, a market strategist at Bank of Communications. "Whether the market can get a lift from the PBOC's weekend move to stem further forced closure of margin accounts remains to be seen. Traders will likely seize the fleeting technical reprieve to exit their positions, and continue to induce short-term volatility."
On Saturday, China's central bank cut its benchmark lending rate by 25 basis points to 4.85% and its one-year deposit rate by the same amount to 2%. China's central bank also lowered the amount of capital that banks must hold in reserve for some lenders in a bid to free up money for new loans.
"The sharp selloff last week on the equity markets no doubt influenced the timing of this move," economists from Société Générale wrote in a research note. "The direct spillover from the equity market to the real economy is fairly modest, but the indirect 'confidence factor' is hard to measure and Beijing appears to have little appetite to experiment with an equity crash."