Capital controls keep China’s Brexit stock losses small
China’s financial markets fell Friday on news that Great Britain voted to leave the European Union. However, the losses didn’t fully reflect the pessimism and disappointment the vote engendered in most countries because China’s tight capital controls limited the selling, which sent other Asian markets plunging.
After falling nearly 3% to a low of 2,807, the benchmark Shanghai Stock Exchange Composite Index ended the day down 1.3% at 2,854 points. The Shenzhen Stock Exchange Composite Index slid 0.76% to 1,901. The small-cap Chinext Price Index fell about 3% midday, but ended down just 0.3% to 2,137.
Combined turnover on the two bourses rose to 646.88 billion yuan ($98.35 billion) from the previous trading day’s 523.6 billion yuan.
The capital controls helped contain the red ink that spilled across the South China Sea. Japan’s Nikkei 225 plunged 7.9% to 14,952. The Taiwan Stock Exchange Weighted Index fell 2.3% to 8,477 and Hong Kong’s Hang Send Index sank 2.9% to 20,259. India’s Sensex lost 2.2% to 26,398.
Among Chinese shares, the transportation and agriculture sectors led the decline. Shipping, coal mining and breeding industries were also big losers, with shares dipping more than 2%.
Gold lifted non-ferrous metals and other strong performance included lithium batteries, integrated circuits and the Internet of Things.
“The mainland market is less sensitive (to Brexit),” Charles Wang, the chairman of Appleridge Capital Management told Reuters. But he added the Chinese market could still suffer from high volatility over the next few weeks.
In a research note, ANZ said although the Brexit result is unlikely to affect China’s immediate economic outlook, the event “reminds us that we are still penciling in one more additional RRR cut,” referring to banks’ reserve requirement ratio.
Going forward, with the British pound down substantially, if this continues it will make Chinese exports more expensive for British and European buyers, and put a damper on manufacturing and raw materials in China.