Chinese chop: US shares fall most since Nov; Sensex slides

MUMBAI: US stocks dropped the most since November as a plunge in Chinese shares sparked a global selloff and raised concern that investors will dump equities after a four-year bull market.

The Standard & Poor’s 500 Index fell for a fifth day, its longest losing streak since March 2004, as commodity producers, consumer and technology companies led losses in companies that rely on demand from China.

Europe’s Dow Jones Stoxx 600 Index slid 2.8% and emerging markets tumbled.

The Dow Jones Industrial Average slipped 123.69, or 1% to 12,508.57. The Nasdaq Composite Index dropped 38.90, or 1.6% to 2465.62.

Emerging market shares plunged the most since June following a rout in Chinese equities on Tuesday -- it was their  biggest all in  a decade -- on concern the government may crack down on illegal investments that helped drive benchmarks to records.

“I wouldn’t buy” in emerging markets, said Marc Faber, a Hong Kong-based investor who manages about $300 million and who predicted the US stock market crash in 1987.

“Something has changed in the financial market: It’s the time to sell rallies rather than buy dips,” Faber, also known as Dr Doom, told Bloomberg.

But Michiya Tomita, who oversees about $264 million in Chinese equities for Mitsubishi UFJ Asset Management Co in Tokyo, said China’s plunge is just a temporary decline prompted by investors who are taking profit after the recent advance.

“The demand for equities is still strong so I’m expecting the market will recover.” The Sensex, already in a weak spot as traders awaited signals from the Union Budget to be announced on Wednesday, dived 170.69 points (1.25%) to end at 13,478.83 points.

Other Asian markets that fell include Indonesia (1.12%), Malaysia (2.81%), Pakistan (0.14%), Philippines (1.44%), South Korea (1.05%), Thailand (0.69%) and Sri Lanka (0.53%).

“We were expecting the markets to consolidate, or at the most, be rangebound. The fall was least expected,” said Sejal Doshi, chief executive officer of Finquest Securities, about the Indian markets.

He feels that the China factor could have played spoilsport, but is also concerned about the underlying negativity that has been ruling the markets over the past two weeks.

“If the markets panic, there are no takers (buyers). Inflation and interest rates are being talked about, but no one is analysing to find out if at all these are going to hit earnings of companies,” he said.

The government’s economic survey, unveiled on Tuesday, has mentioned that “there is no scope for uneasiness or nervousness about high growth.

International experience shows that troublesome inflation need not be the price to be paid for favourable high growth”.

India’s economy is expected to grow at 9.2% for the financial year ending March 2007, the highest in the past 18 years. However, inflation is also ruling at a high of 6.63%.

On the positive side, the survey said that fiscal deficit would be reined in at 3.6% of gross domestic product this fiscal year, lower than the 3.8% targeted and down from 4.1% last year.

While signals from the budget may be keenly awaited, it may be pertinent to note that India is the third most expensive emerging market in Asia, after China and Taiwan. Its trailing price to earnings multiple stood at 24.84 on Tuesday, while those of China and Taiwan were at 37.64 and 25.2, respectively.

While the China factor may not affect India much on Wednesday, it’s the FM’s budget speech that would dictate sentiment and direction for the very short term.

“He is normally investor-friendly. Let’s see,” says Doshi of Finquest.

With inputs from Bloomberg