Asia: Markets stabilise as China moves to reassure investors, STI flat

[SYDNEY] Asian stocks stabilised on Tuesday after the worst start to the year since 1988 as China's central bank added funds to the financial system and US equities staged a late rally.

China's regulator moved to reassure investors after Monday's 7 per cent plunge engaged the nation's new market circuit breakers on their first day.

Most markets halted their plunge with the MSCI Asia Pacific Index little changed at 128.93 as of 11:05 am in Tokyo, swinging between losses of 0.4 per cent and gains of as much as 0.2 per cent.

The Shanghai Composite added 0.5 per cent. Japan's Topix index rose 0.3 per cent and South Korea's Kospi index increased 0.7 per cent.

Singapore's Straits Times Index was unchaged. Australia's S&P/ASX 200 Index lost 1 per cent and New Zealand's S&P/NZX 50 Index declined 0.8 per cent.

"Investors need to be more cautious," said Matthew Sherwood, head of investment strategy at Perpetual Ltd in Sydney, which manages about US$21 billion. "Growth remains a concern. How the year plays out is unclear, but the only surety is that volatility will increase." The People's Bank of China conducted the biggest reverse-repurchase operations since September, adding 130 billion yuan (S$28 billion) of funds to the financial system after money- market rates climbed to an eight-month high. The circuit breaker plays an important role in stabilising the market, and the government will work to improve the system, China Securities Regulatory Commission spokesman Deng Ge said in a statement on Tuesday.

"There's more easing ahead from the Chinese," said Shane Oliver, head of investment strategy in Sydney at AMP Capital Investors Ltd, which oversees about US$115 billion.

"I expect them to cut interest rates and/or the reserve-requirement ratio again. We've been reminded that volatility in financial markets remains high and that the global economy still needs monetary policy support." Asian equities are reeling from the first back-to-back annual losses in a decade amid concern weakening Chinese growth and tighter US monetary policy will choke off an earnings expansion. Regulators halted China's stock market on Monday following a 7 per cent slide.

Global equities had their worst inaugural session in at least three decades on Monday. The MSCI Asia Pacific index slumped 2.3 per cent, the most in three months, after the first economic reports in 2016 suggested concern over the world's second-largest economy won't easily dissipate. Evidence of slowing manufacturing in China triggered the selloff that halted trading in Shanghai.

Losses spread as data showed manufacturing in the US contracted in December at the fastest pace since 2009. US markets recouped some of their losses in the last few hours of trading with the Dow Jones Industrial Average almost halving its decline.

Futures on the S&P 500 added 0.2 per cent. The underlying index closed 1.5 per cent lower on Monday after dropping as much as 2.7 per cent during the day.

BLOOMBERG